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PROFESSOR PERRY'S WORKS ON 
POLITICAL ECONOMY. 



I. INTRODUCTION TO POLITICAL ECONOMY. Fifth 
Edition. l2mo. 357 pp. Price, $1.50. 

2. PRINCIPLES OF POLITICAL ECONOMY. 8vo. 585 

pp. Price, $2.00. 

3. POLITICAL ECONOMY. Twenty-First Edition. Crowrv 

8vo. 600 pp. Price, $2.50. 



POLITICAL ECONOMY 



BY 



ARTHUR LATHAM PERRY, LL.D. 

ORRIN SACiE PROFESSOR OF HISTORY AND POLITICAL ECONOMY IN 
WILLIAMS COLLEGE 



Quid pro quo. Sibi totique 



TWENTY-SECOND EDITION 



NEW YORK 

CHARLES SCRIBNER'S SONS 

1896 



wa\U 



COPYRIGHT, 1873, 1883. BY 

ARTHUR LATHAM PERRY. 



TO 



THESE FEW AMONG MANY, 

MY BELOVED AND HONORED CO-WORKERS IX A FIELD 

WORTHY THE BEST THOUGHTS OF 

THE BEST MEN: 

JOHN BASCOM. FRANCIS A* WALKER, 

DAVID A. WELLS, WILLIAM G. SUMNER, 



PREFACE. 



As the human body continues to be the same body 
'.aroughout all the changes of its growth and mature life, 
so the book now in the hands of the reader has continued 
the same book as the one first published in the late autumn 
of 18G5. This, too, in the mean time has grown in size, in 
symmetry, and in maturity of thought and expression ; it 
has been carefully revised, and in large parts rewritten 
once and again and again ; now at length it has been recast 
throughout for new plates, so that probably there are not 
now three consecutive pages standing just as they stood 
in that original edition ; also the book appears at present 
with a new and simpler title, " Political Economy," in order 
that it may be more easily distinguished from, and brought 
otherwise into better harmony with, my smaller book entitled 
"Introduction to Political Economy;" and the number 
of the chapters (constant till now) has been diminished 
from sixteen to fourteen, in order to allow a fuller devel- 
opment of the more essential portions of the great subject. 
But it is the same book still. In substance of doctrine, in 
nomenclature for the most part, in scientific divisions and 
sequences, in studied clearness of statement on every page, 
in the frequency and fulness of current and historical illus- 
trations of principles, and in the strong and steady drift 

vii 



viii PREFACE. 

against all needless restrictions on trade, — it is the same 
book still. Excrescences have been cut off, crudities 
ripened, and the whole fibre made tougher and more com- 
pact, but the continuity of life has been constantly conserved. 
I had taught Political Economy in this Institution for tc n 
or twelve years without ever forming any purpose to try 
my hand at a treatise on the subject. I had used for my 
teachers and guides the English writers, particularly Adam 
Smith, Ricardo, Senior, and Mill ; and familiarized myself 
also with the American writers, particularly Carey, "Way- 
land, Bowen, and Bascom. Almost from the outset of my 
studies, however, and increasingly as the years went by, I 
kept asking myself, " Wliat is Political Economy about?'* 
" Within what precise field do its inquiries lie?" "Is it pos- 
sible clearly and simply to circumscribe that field ?" I could 
see no solid reason why economical discussions should be 
confined to tangible commodities, and not include as well 
personal services rendered for pay, and also credits of all 
kinds. I could not gain from the general terms used by 
the writers a firm conception of the science as including 
these three classes of things. The word "Wealth," which 
figured so largely in all the books, gave no satisfaction in 
this regard, for this best of reasons, that I never could gain 
with all my strivings a clear and generalized conception of 
just what that word covered. I found besides, that no two 
of the writers had the same notion of the meaning of that 
word, and that no one of them all had given an adequate 
and self-consistent definition of it. I talked this matter 
over repeatedly with Professor Bascom, at that time my 
colleague and always my friend, and suggested to him a 
way of egress from the difficulty ; and my mind had almost 



PBEFACE. IX 

reached the conclusion in which it has now rested for many 
years with perfect composure, when my late friend, Amasa 
"Walker, who was even then a political economist of reputa- 
tion, though he had not yet published his "Science of 
Wealth," recommended to me Bastiat's "Harmonies of 
Political Economy." I had scarcely read a dozen pages in 
that remarkable book, when the Field of the Science, in all 
its outlines and landmarks, lay before my mind just &s it doea 
to-day. I do not know how much I brought to that result, 
and how much towards it was derived from Bastiut. I only 
know, that from that time Political Economy has been to 
me a new science ; and that I experienced tLcn and there- 
after a sense of having found something, and the cognate 
sense of having something of my own to say. 

It is a pleasure to acknowledge in ample terms one's in- 
debtedness to such a quickening writer as Bastiat is, and 
whoever will compare carefully with his book the following 
chapters on Value and Land will see that I have profited 
much by his discussions, and he will also see that I have 
made an entirely independent use of them. The scheme of 
my book is wholly my own. I do not fear to claim, that, 
owing to their present setting, even the points derived from 
Bastiat appear in a new light and in broader relations, and 
that the scientific connections of Utility with Value are more 
cleaily and ultimately put than he put them. An uncom- 
monly competent critic (see The Nation, II. 146) conceded 
on the appearance of the first edition of this book, that 
original light was thrown by it on the vexed questions of 
Land ; and I even dare to hope, that, in the chapter as it 
stands at present, some scientific contribution may be fouud 
towards the solution of the problem, which has tried the 



X PREFACE. 

British Government these late years more than any other. 
Besides, Bastiat, with all the rest, still clung to the bad word 
" Wealth ; " and in my estimation, there could be no better- 
proof that that word is a veritable " slough of Despond," 
than that the far-seeing and firm-stepping Bastiat certainly 
floundered in it. Then, too, I thought I could make no 
better acknowledgment for help received in those parts of my 
book, than to try my best in all the other parts to execute 
the commission which Bastiat left to his readers in these 
words : " I hope yet to find at least one among them who will 
be able to demonstrate rigorously this proposition : the good 
of each tends to the good of all, as the good of all tends to 
the good of each; and who will, moreover, be able to impress 
this truth upon men's minds by rendering the proof of it 
simple, lucid, and irrefragable." 

The most of what is original in my book is an immediate 
or else an indirect result of absolutely dropping from the 
iRtart the use of the word "wealth" as a technical term. 
So far as I know, I was the very first economist to do this ; 
and this change, which seems at first to be but a small one, 
is really a great one, insomuch as it made necessary an 
entire reconstruction of the form of the science as I had 
found it. The books in effect, and most of them in form, 
gave as the subject of the science, the Production, Distribu- 
tion, and Consumption of Wealth, and the primary divisions 
within the treatises turned for the most part on this phrase ; 
but the phrase implies that " wealth " is a concrete thing, 
something that may be produced and distributed and con- 
sumed, that is to say, Commodities only, while the writers 
all conceded that purchasing-power, or Value, resides in 
personal Services and in Credits also. It follows accord 



PREFACE. xi 

ingly, that the true subject of the science is Value, in which- 
ever of the three forms it manifests itself ; and in this simple 
presence, the old divisions fell out of themselves, and the 
word "wealth" dropped out of course as both a nseltss 
and a confusing term. In devising a new scheme, accord- 
ingly, and in elaborating that, most that is new in this book 
came to the surface and easily found its appropriate place. 

The three historical chapters of the book have cost me 
first and last wide research, and very great labor. In 
sketching the histor}' of the United States Tariffs for the 
earlier editions, I had not before me the tracks of a solitary 
pioneer. Benton's Debates, the annual and special Mes- 
sages of the Presidents, and the published Speeches of the 
leading statesmen, were my principal sources. Hildreth's 
Histoiy of the United States gave me some aid in relation 
to the Hamilton and Calhoun Tariffs. It has been a per- 
sonal gratification that the designations originally given to 
the successive tariff-acts iu this chapter have been widely 
adopted, not only in books and pamphlets, but also in 
speeches on the floor of Congress. More recently, several 
able men have usefully busied themselves more or less with 
our tariff legislation, and thus have helped to put this chapter 
into fuller and better shape, pax-ticularly my friends, Wells 
and Sumner and Philpott, and also the new historian, 
Schouler. IS'or was there any one who preceded me in 
attempting to give a history of Money in the United States. 
The materials for that chapter came from widely scattered 
quarters. Since then, Sumner and Walker and Bolles and 
Richardson, and others, have illustrated large portions of 
the subject, and my chapter has profited by their fresh re- 
searches. J. R. McCulloch prefixed to his edition of Adam 



xii PREFACE. 

Smith, i-ublished in 1853, a carefully written " Introduc- 
tory Discourse," which was intended as a succinct history 
of the Science up to that time ; but his strong prejudices 
against the French and other foreign writers, and his unwill- 
ingness to concede that anybody had really contributed 
auy thing to Political Economy except his own count^nnen, 
make the essay at once incomplete and misleading. Tho 
article "Political Economy" in the second edition of the 
American Cyclopedia of Ripley and Dana is very full, very 
learned, and means to be very fair to all sides ; but the 
obvious bias of its author towards Carey and the Pennsyl- 
vania knot of economists hinders it from becoming a wholly 
satisfactory presentation. I do not expect that my introduc- 
tory chapter on the History of the Science will meet the views 
of all my readers, but this at least can be truthfully said for 
it, that no pains have been spared to make it accurate and 
proportionate and unprejudiced, and that the largest part 
of all the quotations taken in it were made at first hand. 

The late President Garfield, who was a pupil and life-long 
friend of mine, was fond of making the remark, that, with 
the exception of the Constitutional argument against ' ' Pro- 
tection," all the points since urged for and against that 
system were brought out in the first congressional tariff 
debate in the summer of 1789. The remark is acute and 
significant, but it is not exact to its entire extent. The 
points iaised in the tariff debate of that year, and in the 
tariff debates of the next sixty years, so far as these were 
epitomized, and published by the indefatigable Senator 
Benter., contain only a remote allusion or two to the argu- 
ment for Free Trade emphasized and iterated in many 
forms throughout these pages, namely, that, if a nation 



PBEFACE. Xiii 

will not buy of foreigners it can not sell to them. This is 
the universal and fundamental objection to "protection" 
so-called, that, if legal barriers keep out a dollar's worth of 
foreign goods which want to come in, they thereby and 
necessarily keep in a dollar's worth of domestic goods which 
waut to go out. The points made in this book agaiust arti- 
ficial restrictions on trade are in no seuse whatever a repro- 
duction of English arguments ; they come, most of them, 
from the simple and indisputable principle just enunciated ; 
and most of the rest have come from the answers given 
from time to time to objections raised by doubting students 
in my own lecture-room. 

Two or three editions of the present treatise had been 
issued before I had seen any of the books of Henry Dunning 
Macleod. Many references to these books and to their 
gifted author will be found in the present text. The points 
of our independent coincidence were many, the points of 
our decided divergence are confined mostly to the nature 
of Money, and I wish here to express in general my sense of 
obligation to him for much information in matters of fact 
and for some distinctions in matters of science. In the first 
volume of his "Principles of Economical Philosophy," he 
has done me the great honor to associate my name with 
Condillac, Whately, Bastiat, and Chevalier, — the heads of 
the third great school of Political Economy. His own name 
is more worthy than mine, and more likely than mine, to 
stand permanently in that distinguished list. 

Every writer who is both competent and earnest puts his 
leaders under obligations of some sort, whether they agree 
with him or not, and I desire to acknowledge my own in a 
general way to a great variety of economical and historical 



xiv PREFACE. 

writers, whom I cannot here name in detail, but to most 
of whom more or less reference is made in the following 
pages. 

I cannot conclude this preface without expressing my 
sense of indebtedness to the successive classes of intelligent 
young men, to whom I have presented, and with whom I 
have discussed, now for more than thirty years, the facts 
and principles of this fascinating science. It seems to me 
as if every possible objection to the leading points in this 
book has been raised at one time or another by members 
of my own classes. Sometimes I have been convicted of 
error in minor things, and many times been fortified in the 
truth, through attempts to remove objections started thus 
by students ; and I deem it of the greatest advantage to 
any political economist, — an advantage to which Adam 
Smith himself was much indebted, — to have the oppor- 
tunity to test views and theories over and over again in the 
presence of fresh and bright minds. It has not infre- 
quently happened in my experience that new light has been 
thrown out upon a subject by a young man just grasping 
the thought for the first time. 

A. L. P. 
Williams College, June 17, 1883. 



TABLE OF CONTENTS. 



CHAPTER I. 

PAGH 
HlSTOKY OF THE SCIENCE 1 



CHAPTER II. 
Field of the Science 80 

CHAPTER III. 
Value 117 

CHAPTER IV. 
Production 165 

CHAPTER V. 
Labor , 203 

CHAPTER VI. 

Capital 251 

xv 



Xvi TABLE OF CONTENTS. 

CHAPTER VII. 

PAGE 

Land 274 

CHAPTER VIII. 
Cost of Production 300 

CHAPTER IX. 
Money 314 

CHAPTER X. 
Money in the United States 377 

CHAPTER XL 
Credit 413 

CHAPTER XH. 
Foreign Trade 461 

CHAPTER XIII. 
United States Tariffs 534 

CHAPTER XIV. 
Taxation .581 



Political economy. 



CHAPTER I. 

HISTORY OF THE SCIENCE. 



Sciences are not formed all at once, but they grow. As 
s rule, the}* come slowly to their exact definition, and then 
the just outline itself is but slowl}* filled up. Many men 
in many lands give thought aud work to the matter in hand, 
till at length a science stands forth to view, it may be in full 
outline if not yet in perfect form. "Here a little and 
there a little" is as much the rule in the unfolding of 
sciences as it is in the revelations of God. 

So it has been with Political Economy. The subject- 
matter of this science is Buying and Selling ; but while 
men have been buying and selling ever since there were 
men on the earth ; and, what is more, while by much the 
largest part of human actions has been put forth to this 
very end, and too a larger and still larger part always as the 
world has gained in age and unity ; and while the thoughts 
of certain men have been given more or less from the firsl 
onwards to the several things that make up the science as 
a whole; still, even the exact definition of it was only 
reached a little more than a century ago, and the form and 
filling up of it are by no means yet so perfect as they will 

become in the future. 

l 



2 POLITICAL ECONOMY. 

The opening chapter of a book like this will fitly irace 
in brief the thoughts that men have had in the past on all 
this matter of trade, as a mere means to prepare its readers 
for the thoughts that they should have on the same subject- 
matter. It would indeed be wrong to begin a treatise like 
the present with critical estimates of past systems, and with 
minute attempts to adjust to each great thinker his own 
meed of praise for what he has added to the common stock ; 
but the beginners in a science as well as its riper students 
interest themselves easily in its history, and seem to come 
more readily to thorough discussiou and ultimate conclusion 
along the roadway roughly wrought by those who have gone 
before. The pioneers prepare the way for the permanent 
settlers ; the advanced guard clears the road for the whole 
army ; and, in this science particularly, the beginner learns 
from its past record in general what it is about, how vast its 
field, how vital its importance, how errors in thought have 
led to mistakes in practice, how grand a thing is freedom of 
industry, how debasing to mind and body is its opposite, 
how peace and good neighborhood are blessed, how the world 
is one and God is good, and then he comes perhaps with 
zest and certainly with insight to definitions and to princi- 
ples, to dry details and scientific reasonings. In short, 
somewhat as the boy at play runs back a little before he 
makes his longest leap, it will be well and orderly to trace 
the steps already trod in economics before we try to make 
our own. 

1. The sun rises always in the east. To the Orient, then, 
must we look for the first streaks of light that reach our 
theme. It is plain, that buying and selling can go but a 
very little way without the aid of weights and measures ; 
and the origin of these has always been ascribed to the 
dwellers on the plains of the Euphrates and Tigris. Chaldea 
on the lower courses of these streams, and Babylonia and 
Nineveh on their more northern reaches, were in this view 
but one country. Chaldea seems to have been the parent 



HISTORY OF THE SCIENCE. 3 

land of arithmetic and astronomy; 1 the Babylonians made 
ont a catalogue of the fixed stars, of which the Greeks 
afterwards made practical use ; the same people invented 
the sun-dial to measure time during the day, and the water- 
clock to measure it during the night, and by these and other 
means they fixed the true length of the solar day, and came 
to know as well as we do that the solar }ear is 365^ days 
nearly ; and they watched the changes of the moon so closely 
as to learn that there are 12 (almost) lunar periods in the 
solar year, which is beyond doubt the origin of the duodeci- 
mal sj'stem in numbers, as a man's ten fingers are the origin 
of the decimal system, and each of these outward facts may 
have suggested the fertile conception of a unit composed of 
a number of equal units. 

It is pretty clear that the Babylonians knew both the 
decimal and duodecimal systems, because thc} T seem to have 
joined the two in their own sexagesimal system. For prac- 
tical purposes they counted by 60, which is just one-half 
the product of 10 and 12, perhaps because the tchole prod- 
uct was too large a unit. They called GO the sossos. and 
its square, 3G00, the saros, and reckoned time by both 
of these. Our hour has GO minutes, and our minute GO 
seconds, simply because that old people so divided them. 
Day and night have each 12 hours, because that old people 
watched the moon. Ilipparehus, a Greek astronomer, who 
lived in the second century before Christ, took all these 
points from them, and also the same numeral system to 
measure the old earth by, and thus he put GO minutes to a 
degree, and 3 GO degrees to the earth's circle. 

These ideas of length and measure, gained partly thus 
from things above and partly also from things below, as the 
length, for example, of the human foot gives one standard 
(foot), and the weight a man can poise in his hand with 
outstretched arm another (jiound), were gradually applied 

» "ChaldtBl cognltione astrorum sollertiaquc ingeniorum anti-ci-lliint." 

Cic. tie Div. 1. 41. 



4 POLITICAL ECONOMY. 

by these ingenious people to surfaces and capacities and 
weights, and definite standards of these were devised, with- 
out which any considerable traffic between man and man is 
impossible. The Greeks owned that thej* learned from 
the Babylonians the art of dividing gold and silver for the 
purposes of trade ; and the same people grappled for the first 
time with the still hard problem of the value of gold to 
silver each to each, and settled it then and there in the ratio 
of 1 to 13-|. At first and for a long time in the oriental 
lands, and borrowed thence in the classical lands as well, 
were the standard zueight and the standard coin the same in 
name and partly also in use, and these, with the cognate 
standards of surface and capacity, being now supplied, 
trade took on a new form and grew great. Babylonian 
bricks burnt more than 2000 years before Christ disclose to 
us that houses and lands were then sold and leased and 
mortgaged ; that money was loaned on interest ; and that 
the market-gardeners worked on shares. Indeed the Baby- 
lonian mina, whose very name even was borrowed both by 
the Greeks and Bomans, controlled in substance their 
weights and coins, and thus influenced the English sover- 
eign and its subdivisions. 1 

Good proof meets us that cloths and carpets and coins and 
other goods went out in trade from the valley of the Euphra- 
tes at a very early day to the countries to the westward, of 
course only to bring back in pay the products of those coun- 
tries. The " goodly Babylonish garment " coveted by Achan 
in Palestine (Josh. vii. 21) perhaps 1600 years B.C. ; the 
word of one prophet who speaks of Babylon as " a city of 
merchants " (Ezek. xvii. 4) , and of another who speaks of the 
"Chaldeans and the ships of their delight " (Is. xliii. 14), 
and of still another who saj's of Nineveh "Thy merchants 
have been more numerous than the stars of heaven" (Nah. 

1 Rawlinson's Ancient Monarchies, I. 102, II. 570, III. 15; Momrnsen's Roman 
History, I. 272, II. 448 ; Max Miiller in Contemporary Review ; and Chief Justice 
Daly before the Geographical Society. 



HISTOIiY OF THE SCIENCE. 5 

iii. 16) ; and the many notices in the classical writers of the 
exports and imports, the grains and fruits, of these earliest 
of civilized men; — all this goes to show that the bulk of 
their lives was given to traffic, and that the fame of their 
works was in all lands. 

If we come nearer to the western sea, facts of the same 
sort meet r.s on every hand. Damascus is so old a city that 
no one dares to tell its age, and yet its very name means " a 
seat of trade." We read that Abraham, about 2000 years 
before Christ, went up out of Egypt " very rich in cattle, in 
silver, and in gold; " and the formal sale to him in Hebron 
of the cave aud the field is full of signs of the drift of those 
times. It was " in the audience of the sons of Ileth, before 
all that went in at the gate of his city, that the field and the 
cave were made sure unto him for a possession. And Abra- 
ham weighed unto Ephron the silver which he had named in 
the audience of the sons of Ileth, four hundred shekels of 
silver, current money wit'.r the merchant." Let us note, 
that here are " merchants " as a class, that silver by weight 
passes as "money" from hand to hand, and that in the 
lack of written deeds (as we have them) sides were "made 
sure " before the faces of living men who would tell the 
truth and pass on the word. Abraham seems to have 
given the pitch for the song of trade sung by the Jews 
from that time to this; for his grandson, Jacob, was a 
skilled trafficker, not to say a secret trickster, in his bar- 
gains ; and wherever in the Old World or the New there have 
been Jews, there have been in fact and in fame buyeis and 
sellers. The word of God in no place calls fair sales wrong, 
but on the other hand blames alike the son who wasted his 
own goods, and the servant who let lie idle his lord's money ; 
and our Lord himself and those with him. though He dn>\e 
the money-changers from the temple as an unlit place for 
their trade, bought with the coin borne in a bag their daily 
bread. 

The man who wrote the book of Job knew well the way in 



6 POLITICAL ECONOMY. 

which the ancient mines were wrought, and the worth of the 
ores : — 

" Truly there is a vein for silver, 
And a place for gold, which men refine. 
Iron is obtained from earth, 
And stone is melted into copper. 
Man putteth an end to darkness ; 
He searcheth to the lowest depths 
For the stone of darkness and the shadow of death. 
From the place where they dwell they open a shaft; 
Forgotten by the feet, 

They hang down, they swing away from men. 
The earth, out of which cometh bread, 
Is torn up underneath, as it were by fire. 
Her stones are the place of sapphires, 
And she hath clods of gold for man. 
The path thereto no bird knoweth, 
And the vulture's eye hath not seen it; 
The fierce wild beast hath not trodden it; 
The lion hath not passed over it. 
Man layeth his hand upon the rock; 
He upturneth mountains from their roots; 
He cleaveth out streams in the rocks, 
And his eye seeth every precious thing; 
He bindeth up the streams, that they trickle not, 
And bringeth hidden things to light." x 

The 27th chapter of Ezekiel gives a vivid picture of the 
immense commerce centering in the city of Tyre. That was 
a home of ships, and a home of the arts. "All the ships 
of the sea with their mariners were in thee to traffic in thy 
merchandise." "Many islands were at hand to thee for 
trade." "With silver, iron, tin, and lead, they traded in 
thy fairs." " They brought thee for payment horns of ivory 
and ebony- wood." Among the articles besides these ex- 
changed in that market are mentioned horses and mules and 
lambs and rams and goats, wine of Helbon and white wool, 
fine linen and embroidered work and riding cloths and man- 
ties of blue and chests of damask and thread, wheat and 

1 Dr. Noyes's translation. 



BISTORT OF THE SCIENCE. 7 

pastry and sirup and oil and balm, precious spices aud cassia 
and sweet reed, and gold and carbuncles and corals aud nil lies. 1 
These old Phoenicians of Tyre colonized Carthage, and thus 
bore a vast trade to the west, going by land into the heart of 
Africa for dates aud salt aud gold-dust and slaves, and by 
sea through the pillars of Hercules northward to the British 
Isles for the sake of the trade in tin. With this agrees a 
dim tradition of the Celtic-Irish that their land was first civ- 
ilized by Phenians, and these were without doubt the l'lue- 
nician traders, who, though they dwelt at Carthage, took their 
name from their native shore. They were great miners also 
both in the East and the West. (Herod, vii. 112.) 

So far as it appears, the Persians were the only Orientals 
who scorned to buy aud sell, — to soil their hands with work 
to that end, — and the evident surprise of the Greek writers 
at this as at a strange thing shows that these people were in 
this respect in strong contrast with their neighbors. With 
this exception, there is no sign of any sense among the Ori- 
entals that exchange of goods is otherwise than beneficial, 
and no sigu of airy effort to stop or binder such exchange ; 
nor, on the other hand, is there any sign that an}- deep 
thought was given to the nature of exchanges, or the reason 
of the benefits they confer. All the men of the east, too, 
bought aud sold slaves, which is wrong even in the eye of 
traffic, since it denies the native right of those who are slaves 
to buy and sell, and thus makes good trade less than it would 
be, aud besides tends' to bring labor, which lies at the root 
of trade, into shame. 

2. The Greeks, who had better minds than the Orientals, 
seem to have been the first to look into the nature of trade, 
and thus were aide to find out some of the germs of our 
science. Nearly every Greek writer throws some light either 
upon the facts of their exchanges, or upon their thoughts in 

1 Under the other name of Tyre, Sara, the Latin poets refer to some of the same 
things with the prophet:— for exam pie, Ptautoa, — " parpuram exSaraattuli;" and 

Virgil, — '* Ut gemma bib:it , et Bairano donuuil owtro." 



8 POLITICAL ECONOMY. 

relation to them. Homer in the Iliad and Odyssey gives a 
full picture of the heroic age ; and while it is almost sure 
proof that no such thing as money was in common use at 
that time, that he makes no mention of it, there are still 
many lines in these poems that show a brisk interchange of 
other products. For instance, these near the end of the 
seventh book of the Iliad : — 

" But the long-haired Greeks 
Bought for themselves their wines ; some gave their brass, 
And others shining steel; some bought with hides, 
And some with steers, and some with slaves, and thus 
Prepared an ample banquet." 1 

Still, there are hints in Homer, that, though there was then 
no money passing from hand to hand, there was then and 
there a sort of common measure of things exchangeable. 
Several articles are mentioned in his poems as being worth 
so man}' oxen. For example, near the middle of the sixth 
book of the Iliad, in these lines : — 

" Then did the son of Saturn take away 
' The judging mind of Glaucus, when he gave 
His arms of gold away for arms of brass 
Worn by Tydides Diomed, — the worth 
Of fivescore oxen for the worth of nine." 2 

Herodotus, the father of History, gives many notices of 
the coins and commerce of both coasts of the Archipelago, 
and also leads us to infer that more of time and thought were 
given to matters of trade by the Greeks than by the Orien- 
tals, although slaves were a curse to Greece and her colonies 
as they have always been elsewhere and for the same reasons. 
Besides this, the very form of the Greek States, in which the 
affairs of private life were subordinated to those of public 
life, — the State being every thing and the individual only 
that which the State allowed him to be, — was really hostile 
to the development of private and associated industry. Be- 
sides this, various States so organized would naturally be 

1 Bryant's translation. » Bryant, 307-311. 



HISTORY OF TIIE SCIENCE. 9 

and actually were often at war, which is a great foe both to 
domestic and foreign exchanges. Still, the historian notes 
many things that interest us as economists ; for example, 
speaking of the Lydians across the sea to the eastward, and 
not knowing as we do their indebtedness to the Babylonians, 
he says (I. 94), " So far as toe have any knowledge, they icere 
the first nation to introduce the use of gold and silver coin, 
and the first who sold goods by retail." He says also of 
Pheidon, a famous king of Argos, who flourished about 7.30 
B.C., that it was he "who first established weights and 
measures throughout the Peloponese." His very ignorance of 
Cornwall and the Isle of Wight, and of the amber coast of 
the German ocean, conveys to us (III. 115) a truth, which 
was then kept well concealed by the shrewd Phoenician 
traders : — " Nor do I Icnoiv of any islands called the Cassi- 
terides [Tin-islands], whence the tin comes which we use: 
nevertheless, tin and amber do come to us from the ends of 
the earth." But on the other hand he knew very well indeed 
(IV. 181-185) about the traffic in salt and dates — mediated 
also by the Phoenicians — in North-western Africa. 

Xenophon, a personal disciple of Socrates, is the first 
man known to have treated economic subjects at some length 
in a connected way. Though best known to the world 
through the Expedition of the younger Cyrus, his name is 
well worthy of mention in any sketch like this now in hand. 
As a patriotic and observant Athenian, he wrote two short 
essays, which clearly show the drift of Greek opinion on this 
subject about 375 B.C. One of these is a dialogue entitled 
"The Economist," in which, though he does not give us its 
limits and divisions, he says that Economy is a science by 
itself, and goes on to make the legal distinction between 
oiKia, house, and oT/co?, the household estate. As the name 
of our science is derived from oiko?, estate, and voftos, law, 
and as Xenophon first used this compound in a sense not 
very unlike its present meaning, he may be said to be the 
author of the name of the science so far as the noun is con- 



10 POLITICAL ECONOMY. 

cerned. The other tract is entitled " Ways and Means," 
and its object is to propose methods for increasing the reve- 
nues of Athens. To this end, among others much less 
sound, he makes these wise proposals : — that the State offer 
encouragements to the settlement of aliens, in order to swell 
the active population and increase the revenue from the 
aliens' tax ; that merchants and shipmasters of all nations 
receive special honors in the city, in order to attract more of 
them thither and thus augment the income from duties op 
imports and exports ; that prizes be offered the presidents 
of the courts to expedite the trial of commercial causes ; 
and that a Council of Peace be instituted, by whose media- 
tion war might be avoided, and the State, in the enjoyment 
of durable tranquillity, enter gradually upon measures of 
national improvement. 

The same book has these just views on money: — "In 
most of the other cities, a trader is obliged to take commodi- 
ties for those he brings, because the money used in them has 
not much credit outside; with us, on the contrary, the foreign 
merchant has the advantage of finding a multitude of objects 
which are everywhere in demand, and besides, if he does not 
wish to encumber his vessel with merchandise, he takes his 
pay in ready money, which of all negotiable articles is the 
safest and most convenient, as it is received in all counties, 
and besides, it always brings back something to its master, 
when the latter judges proper to dispose of it." The best 
sentence in the book, whether one looks at the power of the 
State either for good or evil, is this : — " One has very long 
arms, when he has those of an entire people." But slavery 
taints all that it touches. It tainted the Greek mind through 
and through with contempt for the arts of common labor. 
Xenophon also says ; — " The manual arts are infamous 
and unworthy of a citizen. Most of them deform the body. 
They oblige one to sit down under shelter or near the fire. 
They leave time neither for the republic nor one's friends." 

Plato was a fellow disci; le of Socrates with Xenophon, 



HISTORY OF THE SCIENCE. 11 

but was more receptive as a pupil and more profound as a 
thinker than his fellow. lie gave however but little atten- 
tion to matters of exchange, and fully shared in the con- 
tempt of his time for the laboring classes. But in the 
kt Republic," in which he tries to sketch a perfect state of 
society, and which is indeed so ideal and Utopian that he 
himself had little faith that it could be realized in fact, he 
shows in two places of the dialogue that he knew very well 
the natural need of trade, and the function of money. " In 
fact, we are not all bom with the same talents, and every one 
manifests p>articular inclinations. Things would then go 
better, if every man confined himself to one trade, because the 
task is better and more easily accomplished when it is adapted 
to the tastes of the individual and he is free from every other 
care." "People must be found who icill take upon themselves 
the charge of importing and exporting commodities. Tliese 
are called traders." — " Yes, and besides, if the trade is 
carried on by sea, another set of people will be needed for 
navigation purposes." — "But, in the city, how will our 
citizens distribute the results of their labor?" — " It is evi- 
dent that it will be by sale and purchase." — " Then we need 
a market, too, and a money, symbol of the contract." No 
one has ever put better than this the doctrine of division of 
labor, and of the origin of money. Finding such good 
sense at this point, we are amazed to read at another; — 
"Nature made neither shoen.xkers nor blacksmiths; such 
occupations degrade the people who engage in them, base mer- 
cenaries, who are excluded by their very condition from polit- 
ical rights. As to tradesmen, accustomed to lie and deceive, 
they will be suffered in the city only as a necessary evil." 

Plato dreams of a certain kind of equality for the mem- 
bers of the leading class of his ideal State, and proposes 
for them a property and even wives in common: — " / pro- 
pose that the icives of our warriors be common to all; that no 
one of them live solely with any particular one; that the 
children be common, and that the latter should not know their 



12 POLITICAL ECONOMY. 

parents, nor the parents their children." No wonder that a 
surmise that some of these things were contrary to truth 
and nature took hold of their author: — " We cannot, how- 
ever, hope to realize the plan of this perfect republic. As 
skilful painters delineate in bold outlines models of an ideal 
beauty, impossible to find in individuals, so we only attempt 
to present a finished type." 

When we come to Aristotle, we strike the richest vein of 
ore in the whole Greek field. . He has sometimes been called 
the father of Political Economy. He is certainly the father, 
if not of the science, of this name of the science, which, 
however, he did not intend should be the name of the sci- 
ence at all. It is one of the queer things, that, while 
Aristotle in due form called the science Cheematistics, the 
Science of Properly, which is a good name for it, another 
name, which is not in itself a good one, which he used 
incidentally in a classification in a quite other than the pres- 
ent sense, has come in the course of time to be fixed to the 
science as by his authority. The good name he gave to it is 
thrown off: the poor one he never thought of as such 
is clung to. In the second book of his "Economics" he 
divides economy into four kinds, the regal, the satrapical, 
the political, and the domestic. By the first he means the 
central, by the second the provincial, administration of a 
great empire like that of Persia ; by the third, the adminis- 
tration prevailing in free States; and by the fourth, what 
we also mean by domestic economy. By some means this 
third term became attached to our science as its name, and 
has done it harm, because the adjective conveys the idea 
that the science has much to do with Politics proper. 

Indeed, Aristotle's contributions to the science are found 
quite as much in his "Politics" and "Ethics" as in his 
"Economics." In all three of these treatises of this tran- 
scendent thinker are to be found acute definitions, shrewd 
remarks, and some information as to facts, relating to the 
proper science of exchanges. This, for example, is a per- 



HISTORY OF TIIE SCIENCE. 13 

feet definition of property: — "But by property toe mean 
every thing, of which the value is measured by money." (Eth- 
ics, IV. i.) The proper boundary line between economy 
and morals is drawn as follows: — " Whenever there A 's no 
agreement made about the service performed, those who con- 
fer a favor freely for the sake of the persons on whom they 
confer it, cannot complain; for the value of it is not meas- 
ured by money, and no equivalent price can be paid." 
(Ethics, IX. i.) The same chapter accurately describes the 
ultimate phenomenon of value as between the two persons 
exchanging: — "For each fixes his mind on that which he 
happens to want, and for the saJce of that will give what he 
does give." Aristotle understood, as well as any one under- 
stands at present, the function of monc}' as a measure : — 
" Money, therefore, as a measure, by making things commen- 
surable, equalizes them; for there coiddbe no commerce with- 
out exchange, no exchange without equality, and no equality 
without the possibility of being commensurate." (Ethics, 
V. v.) 

Although Aristotle was a pupil of Plato, his philosophy 
was quite distinct from his master's. In direct opposition 
to Plato's proposed community of goods, he insists strongly 
on the rights and benefits of private property. (Pol. II. v.) 
He goes a loug way beyond Plato, in including the personal 
services of judges and senators, for example, among valuable 
things. (Pol. IV. iv.) lie explains very well the coming in 
of money: — " People agreed to give and receive in trade a 
•useful material of easy circulation. They adopted for this 
use iron, silver, and other metals. Tliis first symbol of ex- 
change was valued at the beginning only according to its vol- 
ume and weight; afterwards it teas stamped with a mark 
which denoted the value, in order to dispense with any other 
verification." (Pol. I. vi.) Then follows a just definition 
of mone}' as " an intermediary commodity designed to facili- 
tate an exchange of two other commodities; " and a just cor- 
ollary from that, namely, that money is a mere means, and 



14 POLITICAL ECONOMY. 

not an end in itself. (Pol. I. ix.) He estimates agriculture 
highly, as the ground of all other arts, and as most favor- 
able to health and morals and good government. (Econ. 
I. ii.) 

But much dross comes out with this good gold. He who 
sa3 r s, " The best nation is a nation of farmers" (Pol. VI. 
iv.), says also, '•'•Neither should they who are destined for 
office be husbandmen." (Pol. VII. ix.) He defends out- 
right the slavery of the inferior members of the human race : 
— " These individuals are destined by nature to slavery, be- 
cause there is nothing better for them than to obey." (Pol. 
III. i.) " It is clear, then, that some men are free by nature, 
and others are slaves, and that in the case of the latter the lot 
of slavery is both advantageous and just." (Pol. I. v.) Of 
course, to a man who thought slavery right, and who lived 
in the midst of it, all kinds of manual labor would seem 
mean : — " And indeed the best regulated States will not per- 
mit a mechanic to be a citizen; for it is impossible for one 
who lives the life of a mechanic or hired servant to practise a 
life of virtue." (Pol. HI. v.) Such views as these are quite 
incompatible with any sound and complete science of econ- 
omy, and are the reason why the man who held them, with 
all his rare skill in these things, and who came so near found- 
ing a school in this science for all time, yet failed to put his 
name at the head as founder and father. 

Once in a while Aristotle makes a false inference from a 
sound principle, as when he infers from the truth that money 
is a means to an end, that interest on money should not be 
paid for its use, overlooking the fact that money is a form 
of value as well as a means of distributing other forms of 
value: — '■'■For usury is most reasonably detested, as the 
increase of our fortune arises from the money itself, and not 
by employing it for the purpose for which it was intended." 
(Pol. I. x.) He had watched well the spirit of monopoly, 
which has often attended exchanges, and always will attend 
them unless the vigilance of the people insists on the freest 



HISTORY OF THE SCIENCE. 15 

possible competition : — " A Sicilian had a sum of money in 
store. He boxight with it all the iron there was at the forges. 
Soon merchants arrived from different countries, and found 
iron only with him. He had not raised the price too high; 
however he doubled his investment, which was fifty talents." 
The keen eye of this Greek saw clearly the vital distinction 
which we now make between Utility and Value, and which 
Adam Smith drew less sharply between " value in use and 
value in exchange:" — " Every article of property has two 
uses, both inherent in the article. One is the natural use, 
the other the artificial use. Thus the natural use of covering 
for the feet is for aid in walking; its industrial use is to be 
an object of exchange." (Pol. I. vi.) 

It is not quite certain whether Aristotle included in his 
term for property — xPVI xaTa — from which term he coins his 
name of the science — chrematistics — all three of the classes 
of valuable things, namely, material commodities, personal 
services, and credit-claims. He certainly includes the first 
two, and there are some good reasons for thinking that his 
mind took into the term the third also. First, he defines 
property as " every thing, of which the value is measured b* 
money," which implies that value only appears through ex- 
changes, since the only way in which any of these thing* 
can be truly " measured b}* money " is by being exchanged 
against money ; and his objection to usury seems to imply 
that notes of hand, or credit-claims of some sort, were then 
in common use ; and it is certain that the Greeks borrowed 
money freely at all rates of interest, and they could hardly 
have done that without the current use of some form of credil . 
Second, the later law-usage of the Greeks expressly includes 
credit-claims in the term xPVl xaTa 5 aut l a dialogue a little 
later than the time of Aristotle, called " Eryxias," includes 
under that term even more distinctly than he does, "those 
persons who teach music or grammar or some other science, 
who in return for this obtain zchat is necessary for them as a 
remuneration for this instruction." Thus the Greeks, and 



16 POLITICAL ECONOMY. 

specially Aristotle, made a good beginning in our science, 
and there they stopped short. 

But the Greek States showed practical good sense in theii 
laws of property. They fell into no such follies as marked 
sometimes the public action of Rome, and of many modern 
States. A law ascribed to Solon made free at Athens the 
rate of interest on money loaned, and there is no evidence 
that any restriction was afterwards imposed either there or in 
any other Greek State. Grote says, " It may be asserted 
with confidence that a loan of money at Athens was quite as 
secure as it ever was at any time or place of the ancient world." 
The natural march of industry and commerce was not hin- 
dered ; there was no forbidding the export of raw materials 
or of specie ; no favoring of manufactures at the expense of 
agriculture ; no efforts to preserve an artificial balance of 
trade ; and no duties on imports except for purposes of rev- 
enue. These at Athens itself were usually 2% of the value 
of the goods, at the ports of her subject-allies 5%, and 
exceptional cases of higher rates than these were regarded 
as extortionate. 1 

3. The Romans were a practical people, fond of law and 
order, and naturally addicted to trade. Mommsen thinks, 
(I. iv.) that the city of Rome itself had its origin, or at 
least its early growth, in the natural traffic that followed the 
course of the Anio and the Tiber. ' ' Increase of substance 
and of prosperity by husbandry and the rearing of flocks and 
herds, by seafaring and commerce — this was what the Ro- 
man desired from his gods; and it very well accords with this 
view, that the god of good faith (deus fidius), the goddess of 
chance and good luck (f ors f ortuna) , and the god of traffic 
(mercurius) , originating out of their daily dealings, appear 
very early as adored far and near by the Romans. Strict 
frugality and mercantile speculation were rooted in the Ro- 

1 See Boeckh's Public Economy of Athens, paasim ; Heeren's Ancient Greece, 
chap, x.; G-rote's Greece, vjl. 3, chap, xi.; Macleod's Econ. Phil. vol. 1, pp. 47, 1 Q 5; 
and Blanqui's Hist. Pol. Econ. chap. iii. 



HISTORY OF THE SCIENCE. 17 

man character too deeply not to find their thorough reflection 
in Us divine connterjmrt." (I. xii.) But unfortunately, the 
Romans worshipped Mars even more devoutly than they 
worshipped Mercury ; and the almost constant recurrence of 
wars, down to the time of the empire, interfered sadly with 
the natural growth of trade and commerce. Besides this, 
the form of slavery among the Romans was far worse than 
1 hat in vogue among the Greeks, or any of the modern na- 
tions, — " it is very possible that, compared with the suffer- 
ing of the Roman slaves, the sum of all Negro suffering is 
but a drop," — and the more servile and hopeless the com- 
mon laborer, the worse the name and fame of all labor. 

The courtly Cicero apologizes in a letter to his friend for 
his sorrow over the death of his favorite slave ; and in sev- 
eral passages of the " De Officiis " he follows his Greek 
teachers, Plato and Aristotle, and declaims in a pitiful way 
against the noble rights of labor. "All artisans are en- 
gaged in a degrading profession." Again, "there can be 
nothing ingenuous in a workshop." "When trade and com- 
merce are carried on on a small scale, "they are to be 
regarded as disgraceful;" when on a large scale, "they 
must not be greatly condemned — non admodum vituper- 
anda! " (I. 42.) AVhen social prejudices and views of labor 
like these are held by the foremost man of his time, the best 
educated and the most liberal, there is no longer room for 
surprise at the comparative lack of Roman contributions to 
our science. 

Then the form which the love of gain took on at Rome 
was a great bar to much study into the real nature of gains. 
Instead of the usual voluntary union of capital and labor 
for the mutual benefit of each, the laborer was owned by the 
capitalist, and the true relations between the two were dis- 
guised and distorted. Business in all its branches came to 
be carried on by means of slaves; the lands were tilled by 
slaves ; slaves became the artisans of the country ; the 
money-lenders and the bankers of the centre scattered 



18 POLITICAL ECONOMY. 

branch-banks in the towns under the direction of tneir 
slaves and freedmen ; the company that leased on specula- 
tion the customs-duties from the State had their slaves and 
freedmen levy these duties at each custom-house ; the con- 
tractor for buildings bought architect-slaves ; and the mer- 
chant imported his goods in ships of his own manned by his 
slaves or freedmen, and then sold the same at wholesale or 
retail by the same means. In this way a gigantic system of 
unnatural traffic was built up and extended. ' ' Eoman mer- 
cantile transactions fully kept pace with the contemporary 
development of political power, and were no less grand of 
their kind." " The Roman denarius followed up closely the 
Roman legions." (Mom. III. 12.) Thus great estates 
were acquired in certain families. A Greek writer observes 
of the younger Scipio Africanus, that he was not rich " for 
a Roman ; " and Lucius Paullus, though he had an estate of 
$70,000, was not reckoned among the rich senators; and 
each of the daughters of Scipio Africanus the elder received 
from him as a marriage portion $60,000. 

This spirit of speculation that came to pervade all the 
forms of Roman life, the mode of doing business by means 
of contracts adopted by the State and extended by private 
persons to almost all their affairs, the power of capital apt 
to be unscrupulous which put slaves and cattle upon the 
same level, the absorption of the larger part of Roman 
riches by the few great families, and the source of the 
most of these riches as from conquests and from tributes 
and often from official extortion in the provinces, excited the 
strong hostility of the Roman moralists, and thus put up 
another bar to economical inquiry. Cato the elder, a leader 
of these moralists and of a reform party in Rome, while he 
believed in and practised a diligent money-getting by means 
he deemed lawful, and wrote to his son, — " a widow's es 
tate may diminish, but a man must increase his substance, 
and he is worthy of praise and full of a divine spirit, whose 
account-books show at his death that he has gained more than 



HISTORY OF THE SCIENCE 19 

he has inherited ; " wrote also in his book on agricultwe, — 
" lending money at interest has many advantages, but it is 
not honorable. Our forefathers accordingly ordained and in- 
scribed it in their laws, that the thief should be bound to j>ay 
twofold, but the man who takes interest fourfold, compensa- 
tion; whence we may infer how much icorse a citizen they 
deemed the usurer than the thief." "When our forefathers 
pronounced the eulogy of a worthy man, they praised him as 
a worthy farmer and a worthy landlord; one ivho was thus 
commended teas thought to have received the highest praise. 
The merchant I deem energetic and diligent in the pursuit of 
gain; but his calling is too much exposed to perils and mis- 
chances. On the other hand, farmers furnish the bravest men 
and the ablest soldiers; no calling is so honorable, safe, and 
inoffensive as theirs, and those who occupy themselves with it 
are least liable to evil thoughts." 

Again, the policy of the Roman Government in respect to 
the prices of grain became fatal to the small farmers of Italy. 
From an early time, the State, as was perhaps reasonable 
under the circumstances, had kept a watchful eye on the 
prices of the food-grains, and, whenever it looked like a 
dearth at home, had made well-timed purchases of grain 
abroad for the army and the people also ; but later, after 
the conquest of Sicily and of other fertile countries growing 
grain, the tribute-deliveries of these States subject to Rome, 
and the chance to buy at cheap rates a vast mass of grain 
from over sea, tempted the State to glut the markets of the 
city with such grain at such prices as proved the ruin of 
the home grain-growers. The small Italian farmer could not 
raise grain for such prices, and therefore lost his market ; iu 
vain did Cato scold at this great wrong ; by and by grain 
was doled out as a gift to the hungry citizens at the expense 
of the State treasury ; and the capitalists, no longer able 
to loan money to the small farmers because these could not 
repay them, began to buy up the small holdings and to merge 
them into larger ones managed now by freed men and slaves. 



20 POLITICAL ECONOMY. 

Thus free labor passed off from the soil, and Pliny writes its 
epitaph in three memorable words, — " latifundia perdidere 
Italiam," — broad farms proved the ruin of Italy. It is 
plain, that a sound science of bujing and selling could hardly 
be found amid such views of labor, such methods of gain, 
such moral notions, and such interferences with prices on 
the part of the State, as prevailed at Rome. 

Strange to say, it is in the Roman Law that we find, 
nevertheless, some admirable definitions, some acute distinc- 
tions, and even some theoretical discussions, relating to our 
science. For example, one would have to try hard before he 
could improve the beauty or the brevity of Ulpian's defini- 
tion of property : ' ' Ea enim res est quce emi et vendi potest. 
For that is property which may be bought and sold. (Fr. 17 
D. XVIII. 4.) Ulpian was a Roman jurist, assassinated by 
an imperial order in 228 A.D. ; and when the Code of 
Justinian was formed about 300 years later, many extracts 
from his writings found their way into the Digest. Ulpian 
also says, — " Nomina eorum qui sub conditione vel in diem 
debent et emere et vendere solemus. } ' We are accustomed 
to buy and sell debts payable on a certain day and at a certain 
event. (Fr. 17 D. XVIII. 4.) As examples of sharp dis- 
tinction in matters economical, let us take these from the 
Digest : — " Omnium rerum, quas quis habere, vel possidere, 
vel persequi potest, venditio recte ft. ' ' A sale is lawful of any 
thing which a man has, or has the use of, or has the right 
to sue for. (Fr. 34 § 1 D. XVIII. 1.) "Pecuniae, nomine 
non solum numerata pecunia, sed omnes res, tarn soli quam 
mobiles et tarn corpora quam jura continentur." Under the 
name of Property, not only ready money, but things both mov- 
able and immovable, both corporeal things and Rights, are 
included. (Fr. 222 D. L. 16.) 

As examples of what may be called economic discussion, 
let us note two passages in the Institutes of Justinian. 
" Some valuable things are corporeal and others incorporeal. 
Tilings corporeal ■ are those, which by their nature can be 



HISTORY OF THE SCIENCE. 21 

touched, such as land, a slave, clothes, gold, silver, and other 
things innumerable. Things incorporeal are those which can 
not be touched, such as those which consist in mere rights, as 
an inheritance, a usufruct, uses, and all obligations hoicever 
contracted. Nor is it any objection that corporeal things are 
contained in an inheritance; for fruits also which are gath- 
ered from land are corporeal; and that which is due on an 
obligation is usually corporeal, as land, a slave, money; but 
the right of inheritance, and the right of using and enjoying, 
and the right of the obligation are incorporeal." (Pr. §§ 1& 
2, J. II. 2.) 

" Likewise value ought to dwell in money ; for it used to be 
earnestly discussed, whether value can be in other things, — 
for example, whether a slave or a piece of land or a garment 
can be the value of another thing. Sabinus and Cassius 
think, value can dwell in another thing [than money~\ too; 
whence is that which was commonly said, buying and selling 
is carried on in the exchange of goods, and that view of pur- 
chase and sale is very old; and they used for proof the poet 
Homer, who somcivhere says, that the army of the Grecians 
procured wine in exchange for certain things. Writers of a 
different school took the opposite view and thought, exchange 
of commodities was one thing, but buying and selling another 
thing: furthermore, they thought, the matter could not be 
explained in the case of exchanging commodities, which thing 
seems to have been sold as property and which given as the 
price; for reason does not allow that both things appear to 
have been sold and given as the price. But the opinion of 
Procullus has deservedly prevailed, who says, exchange is a 
particular kind of transaction different from selling; since 
this is both supported by other verses of Homer, and is proven 
by stronger reasons ; and this, both former illustrious persons 
have given a place to, and it is shown more at length in our 
Digest." (§ 2, J. de empt. et vend. III. 23 (24). The 
place in the Digest referred to is D. XVIII. 1.) 1 

1 Mr. Macleod was the first modem economist to bring out the interesting aspects 



22 POLITICAL ECONOMY. 

In the matter of common sales, and in the matter of tax- 
ation, the Romans showed for the most part a good common 
sense, that is, a desire to be fair and just. The law held 
all sales to be valid, in which a tangible thing had been 
rendered and received, even though they were concluded 
without any legal forms, while the promise of a gift made 
without due form was null both in law and fact. On the 
other hand, the sale of personal services was much restricted 
among the Romans as compared with modern peoples both 
by the prevalence of slavery and also by the odd relations 
between Clients and Patrons. Also, sales of credits, the 
only remaining class of things salable, did not reach very 
large proportions among the Romans ; because, first, there 
was no credit on land security, but instead of a debt on 
mortgage the land was passed over at once to the creditor 
as if he were actual owner, who thereupon gave his word 
of honor (fiducia) that he would not sell the land until 
the debt fell due, and would at once give it back when 
the debt were paid ; and because, second, personal credits, 
except in one case, gave no .right of action at law, although 
the poor debtor who could not pay fell summarily into the 
power of the creditor, who could treat him as a slave or 
worse. " The law could not have more clearly expressed its 
design, which was to establish at once an independent agri- 
culture free of debt and a mercantile credit, and to sup- 
press with stringent energy all merely nominal ownership 
and all breaches of fidelity." The principle of insurance 
was unknown at Rome ; but something very much like it, 
namely, the nautical loan, or as we call it " bottomry," was 
much used. Even Cato, who hated interest, did not scruple 
to lend money with others on ships pledged for its repay- 
ment with premium in case of a successful voyage : if the 
ship were lost, the lender lost his money. 

of the Roman Law towards our Science. This last extract from the Institutes waa 
called to my attention by Mr. Melville Egleston, and was translated for me by Mr. 
V. W. Fiske, — both recent graduates of this college. 



HISTORY OF THE SCIENCE. 23 

In general, a sale on credit neither gave nor took away 
the right of property, and so furnished no ground of legal 
action ; but in one class of cases it did, namely, in that of 
the loan (nexum) of ready money. This exception in law 
shows clearly, what is shown, too, in the passage from the 
Institutes but just now quoted, that the Romans looked 
upon money as something quite different from other forms 
of salable things ; and, in the teeth of the sound view of 
Aristotle, who said that money is a means only, deemed it 
in a sense an end in itself, — something to be gained and 
not readily to be parted with. If this were the right view 
of money, then the policy to spring from it might well be, — 
Get all the money possible into the country and let as little 
as possible out ! Just this came to be the policy of the 
Romans. In one of his orations Cicero says, " The Senate 
solemnly decreed both many times previously , and again when 
I was consul, that gold and silver ought not to be exported." 
This view of money and of what is to be done about it may 
be said to be the first Theory of Sales. Let us call it the 
Bullion Theory. The Romans brought it forth, and other 
nations took it from them. It is plausible only. Because 
all men seemed eager to get money, and because when the 
worth of any tiling were asked for the answer always came 
— so many denaries or sesterces — these people thought 
that money is ultimate and not mediate. 

Finally, in taxation the Romans were sensible and moder- 
ate. They laid taxes for the sake of getting money for the 
public treasury, and had no other end in view. They knew 
nothing of what has since become famous under the name 
of "Protection." Their taxes were both direct and in- 
direct, but especially the latter. The chief direct tax was 
the land-tax, that is, a claim to the tenth part of the sheaves 
and of other field produce, such as grapes and olives ; and 
also pasture-money (scriplura) demanded of those who 
made use of the public pastures and woods. In Macedonia, 
and the other larger provinces, in lieu of the land-tax a 



24 POLITICAL ECONOMY. 

fixed sum of money (tributum) was paid to Rome each year 
by each community in its own way. The grain-tenths and 
pasture-moneys were always farmed out to private contract- 
ors or companies on condition of their paying fixed quan- 
tities of grain or fixed sums of money. The chief indirect 
tax was customs-duties. There never was at any time a 
general tariff for the whole empire, but there were customs- 
districts, such as Italy, Sicily, proconsular Asia, the prov- 
ince of Narbo in Gaul, and others, each with a sort of tariff 
of its own, and some with special immunities. Goods 
imported by sea into Italy, for example, not for the per- 
sonal use of the importer, were subject to a tax, which 
seems to have been mainly a tax on luxuries, since pepper, 
cinnamon, myrrh, ginger, perfumes, ivory and diamonds, 
are among the dutiable goods mentioned in one of these 
tariffs. Sicily had a tariff- tax quite distinct from this, since 
one-twentieth of the value of the goods (5 °/ ) was levied on 
the frontier on all imports and exports ; and a similar tax of 
one-fortieth was laid by the Sempronian law on the province 
of Asia. These imposts, too, were leased to contractors, 
which gave, of course, some chance to fraud and wrong. 
There were other temporary taxes, like those, for instance, 
which Augustus laid of h°f on legacies and inheritances, 
and of 1 % on articles publicly exposed for sale. 1 

4. Between the years 330 and 1453, that is to say, from 
the founding of Constantinople till its capture b}^ the Turks, 
lies the Middle Age. The main fact in this long stretch 
of time was the conversion of Western Europe to the faith of 
Christ. The new faith was in all ways favorable to trade. 
In the first place, little by little it took the life out of Slavery. 
It came to the slave, and said, Thou art the Lord's freeman ; 
it came to the master, and said, Thou art the Lord's servant ; 
and it came to both alike, and said, Ye are brethren. As a 

1 Mommsen's Rom. Hist, passim, and especially TV. ii. ; Blanqui, Hist. Pc 
Econ. chap, vii.; and articles " Vectigalia" and "Portorium" in Diet, of Antiq. 
titties 



HISTORY OF THE SCIEXCE. 25 

rule, the christian church has always and everywhere been 
a foe to human bondage ; and we will look a moment to 
England as a type in this of all the other lauds. As early 
as the 7th century, Archbishop Theodore denied christian 
burial to the kidnapper, and forbade the sale of children by 
their parents after the age of seven ; a little later, Bishop 
Egbert of York excommunicated the seller of child or kins- 
folk ; the killing of a slave by lord or mistress, though no 
crime in the eye of the law, became a sin for which penance 
was due to the church ; iu the 10th century, King Athelstane 
gave the slaves a new rank in the realm by making them 
mutually responsible in cases of crime, just as this rule had 
long been the basis of order among the freemen ; the church 
also led the way in the work of directly freeing the slaves, 
the bishops and other clergy setting the good example ; says 
Macaulay, " when the dying slaveholder asked for the last 
sacraments, his spiritual attendants regidarly adjured him, as 
he loved his sold, to emancipate his brethren for whom Christ 
had died; " often slaves were set free before the altar or in 
the church-porch, and the solitary church-Bible bore the 
record of the fact on its margins ; and before the close of 
the 11th century, Archbishop Lanfranc had put an end to 
the slave-trade in its last hold, the port of Bristol. When 
slavery dies out anywhere, trade gains new life then and 
there, because there are now more persons, more motives, 
and more resources, to trade. Just at the time when the old 
white slave-trade ceased in England, we read that " the realm 
increased in riches and prosperity. Its gold work and em- 
broidery icere famous in the markets of Flanders and France." 
On the other hand, Feudalism, which is only less hostile than 
slavery to a free and varied industry, took the place of that 
in man}' parts of Europe, and retarded for a long while the 
growth of a wholesome trade. 

In the second place, Christianity makes men sensible of 
new w r ants, puts them under new and strong impulses, en- 
larges their foresight, and develops in them new grounds 



26 POLITICAL ECONOMY. 

of mutual trust. All of these things help on buying and 
selling, and the felt benefits from the exchanges already 
made tend constantly to increase the buying and selling of 
the future. It has been seen in every age since the Lord 
came, that His truth leads men on to trade more and mcie. 
Dr. Christlieb, of Bonn, in a survey of modern missions 
made in the year 1880, uses these words, — " it has been calcu- 
lated that every missionary in the South Seas creates on an 
average a trade of $50,000 a year." Still it is true that 
the form which the christian religion took on in the Middle 
Age held back these forces more or less from their true 
working. Men became monks from the false idea that the 
touch of the world taints the soul. Religious houses were 
founded in spots remote from the haunts of men ; and while 
the brethren often drained the marshes, and made many a 
waste acre as fertile as a garden, still the notion lay in their 
minds that somehow it was wrong to buy and sell and get 
gain. The schools, which were under the control of the 
clergy, favored this notion, and filled the minds of their 
pupils with religious subtleties and scholastic distinctions 
rather than with a solid knowledge of the world as it is. 
Without doubt also the common christian hatred of the Jews, 
who were the briskest traders and principal money-lenders 
of the Middle Age, deepened this prejudice. 

At the same time the Jews were showing to the world 
what wonders can be wrought by capital. In spite of the 
endless disabilities put upon them by law and public opinion 
in France, Italy, Spain, Germany, and even England, the 
industry and frugality of these strange people piled up at 
intervals large sums of money. They were by turns shunned 
and courted, robbed and protected, forbidden and then en- 
couraged to trade, often banished and then recalled, always 
hated and yet always leaned on, sometimes murdered without 
mercy and again armed with safe-conducts for travel and 
trade. Magna Charta forbids in 1215 the payment of inter- 
est on debts due the Jews in behalf of any minor while his 



HISTORY OF TUE SCIENCE. 27 

lands are in wardship. St. Louis of France (a mere 
instance) released by law their debtors from all payment, 
shut up his courts to their claims, and even forbade their 
making any contracts ; and again in 1254 decreed that " the 
Jews must cease usuries, blasphemies and sorcery, and live 
henceforth by the labor of their hands and other tasks with- 
out loaning money." Edward I. of England in 1290 bade 
them forego usury on pain of death, and shortly after 
expelled them the realm. In spite of all, the Jews continued 
to be bankers, bullion-dealers and money-lenders to the Gen- 
tiles ; and their loans, though at a high rate of interest, gave 
a sharp spur to industrial energ}* and to the building of castles 
and cathedrals. If they had had a decent freedom and secur- 
ity, they would have loaned vaster sums at lower rates and 
so transformed the face of the nations. 

Then, too, the confusions consequent on the breaking up 
of the Roman Empire, and on the migration of the modern 
nations into the seats of the ancient civilization, broke in two 
the lines of the older commerce and put off for a long time 
the knitting of strong new ones. The lands of Western 
Europe changed hands. Northmen threw themselves into 
England and into the best parts of France. Through the 
Moors, the East poured itself into the West, and Bagdad 
was joined in faith and works with Cordova, which at length 
even eclipsed it in population and splendor. Although the 
Moors brought into Europe much learning and much trade, 
jheir defeat at Tours in 732 and their final expulsion from 
Granada in 1492 checked the growth of both of these, and 
left it for the new towns founded by men of German stock 
to furnish for both a lasting home. 

It is to these towns made free one by one from the servi- 
tudes of Feudalism that we are to look for the beginnings of 
the modern forms of industry and commerce. Exempted in 
one way or another from the random taxes of the times, and 
receiving upon one ground or another the rights of self-gov- 
trnment by a town-council, and of self-defence by town- 



28 POLITICAL ECONOMY. 

walls and a town-militia, these places soon became the seats 
of a busy traffic ; and in turn and in time spurred on a bette* 
agriculture all around them because the tillers of the soil 
soon wished to buy with their produce the products of the 
towns ; while these sought and found a widening sale of 
their own products in distant markets so as to buy therewith 
the products of the world. So London thrived after the gift 
of its first charter by William the Conqueror, and especially 
after the charter of rights granted by Henry I. , which be- 
came a model for many lesser towns. So Oxford thrived 
after its older customs and exemptions had been confirmed 
to the townsmen by Henry II., "as ever they enjoyed them 
in the time of Henry my grandfather,- and in like manner as 
my citizens of London hold them." In the next century 
Magna Charta holds these words ; — " Let the city of London 
have all its old liberties and free customs as well by land as 
by voater. Besides this we will and grant that all other cities 
and boroughs and towns and ports have all their liberties and 
free customs." The same instrument secured liberty of jour- 
ney and trade to foreign merchants, and a uniform system of 
weights and measures throughout the realm. The old frith- 
gilds in each of the English towns had early united in one 
body called the Merchant-Gild, and this body of organized 
citizens both governed the town as such and controlled all 
its internal trade ; and the principal street of old London 
still tells in its name of "Cheap-side," or the bargaining- 
place, of the early prominence in that town of its buyers and 
sellers. The principal exports of England in this period 
were tin and wool ; the towns in Flanders across the Chan- 
nel spun and wove and dyed earlier and better than England 
did ; the weavers of Bruges were celebrated even in Charle- 
magne's time, and in 1430 Philip the Good instituted there 
the order of the Golden Fleece, which still exists both in 
Spain and Austria, in token of the riches and honor brought 
in through wool ; the looms of Ghent and Li6ge were equally 
rich in linens ; so that for a long time England sold her raw 



HISTORY OF THE SCIENCE. 29 

wool to Flanders to take back fine cloths and other things 
in pay. From his Parliament of 1 2 7 ."» , Edward I. obtained 
the grant of Gs 8d on each sack of wool exported, which was 
the very beginning of a legal customs-revenue in England. 

The famous Hanse towns, so-called from an old Teutonic 
word hansa, a league, formed a bond of union for the de- 
fence and extension of commerce, and did a vast deal 
toward those ends, during the two hundred years preceding 
the fall of Constantinople. Hamburg had been founded by 
Charlemagne in the 9th century, and Liibeck was founded 
in the 12th, and these two first, and afterward other 
German towns near the Baltic and Northern seas, and later 
towns along the Rhine and elsewhere, constituted the League. 
By it piracy was suppressed in the northern waters, civiliza- 
tion and the arts were established along their shores amid the 
wild Slavonic settlers, and commodities of every name were 
made, grown or distributed by means of the marts of these 
towns, which numbered at last about 70 in all, and were 
divided into 4 circles, of which Liibeck stood at the head 
of the first, Cologne of the second, Brunswick of the third, 
and Dantzic of the fourth. Partly in return for loans of 
money, since trade always gives birth to gains, and parti}' 
by hook and by crook, these Hanse towns obtained from the 
kings of the North special privileges in navigation and ex- 
change, which they afterwards kept b} r force of arms. In 
order to make wider and easier their commercial transactions 
the League had Factories so-called, that is, depots for the 
sale of goods, in widely distant lands, such as those ir 
Novgorod in Russia, London in England, Bruges in Flan- 
ders, and Bergen in Norway. Along this first open route to 
Russia passed the goods in demand there to bring back then 
as now the skins, hides, grain, hemp, tar, and timber of 
those vast regions. Perfect freedom of exchange reigned 
between all these towns, and between them and their distant 
depots. Their money had long been of rare purity and of 
right weight, whence comes a famous word in our modern 



30 POLITICAL ECONOMY. 

world. "In the time of King Richard the First, monie 
coined in the east parts of Germanic began to be of especial! 
request in England for the puritie thereof, and was called 
Easterling monie, as all the inhabitants of those parts were 
called Eastcrlings, and shortly after some of that countrie, 
skillfull in mint matters and allais were sent for into this 
rcalme to bring the coine to perfection ; which since that 
time was called of them sterling for Easterling." {Camden.) 
The Hanseatic League decayed at last, partly on account of 
internal jealousies between the members, partly on account 
of an external jealousy of their special privileges, partly also 
on account of the English discovery of the sea route to Arch- 
angel which took away their Russian trade, but mainly after 
all on account of the successful accomplishment of all the 
work they had had in hand. 

The towns of Italy, even after their conquest by the men 
of German stock, kept the forms, or at least the traditions, 
of the old Roman municipal law, and therefore came earlier 
than Teutonic towns elsewhere into prominence in all the 
arts of trade. Pisa and Genoa, for example, grew great in 
commerce even before the Crusades had thrown into their 
bosom a good part of the riches of the West in payment 
for transportation and provisions, and had gained them also, 
as a reward for direct help in the wars of the time, much 
dominion in the Levant. The leaders of the Crusades liked 
to enroll in their ranks artificers of all kinds ; and these 
clear-eyed men watched to some purpose the arts of the 
Saracens and Greeks, and brought back from the East to 
the cities of Italy and to the West generally the germs of 
industries a thousandfold- more valuable than all the riches 
spent on those memorable expeditions. For instance, at 
Damascus they learned how to work figures on cloth and 
steel, as the terms damasTc and Damascus blades well prove ; 
at Tyre they caught the art of making those fine glass 
fabrics, which enriched Venice throughout the Middle Age ; 
at Tripoli they saw for the first time the sugar-cane, which 



HISTORY OF THE SCIENCE. 81 

they transplanted to Sicily ; even our common maize, still 
called in Germany Turkish corn, was then lirst brought west- 
ward ; and more than all, the breeding of silk-worms and the 
making of silk, arts which had been solely Chinese till about 
550, and were then carried to Constantinople, and thence 
later to Greece, and in 11-47 to Sicily, were borne by the 
Crusaders to the Italian towns. Lucca passed over the silk 
culture to Venice in 1310; and that town, which had been 
founded in 452 on low islands as a refuge from the terrible 
Huns, became in the 14th and 15th centuries the chief manu- 
facturing and commercial city in Christendom. Its own 
products were glass, silks, cloth of gold, leather, and sugar; 
and it carried for all Europe the drugs and spices and other 
products of the East Indies. How natural and how gainful 
it is to buy and sell ! Said one of the doges of Venice on 
his death-bed in 1423, " I leave the country in peace and pros- 
perity. Our merchants have a capital of 10,000,000 golden 
ducats in circidation, on which they make an annual profit 
of 4,000,000 ducats. We have 45 galleys and 300 ships 
of war; 3,000 merchant vessels, and 52,000 sailors; and 
1,000 nobles with incomes varying from 700 to 4,000 ducats 
each." Incessant wars, privileges restricted to " nobles," 
and the discovery of a new ocean route to India by the Cape 
of Good Hope, sapped this enormous opulence. 

Florence had its very birth in the needs of traders, and 
the people entered into the mechanic arts with such zeal that 
their manufactures of wool, silk, gold brocade, other gold- 
work, and jewels were exported everywhere ; and the gains 
of this trade gave birth to banking on a great scale, so that 
the loans of the chief sovereigns of Europe were largely 
taken up in Florence ; in 1254, the Republic coined their 
famous gold florin, unequalled at the time for beauty, as tho 
wide-spread use of the mint-term florin in other nations till 
now sufficiently shows ; and in process of time there was a 
separation at Florence, as there tended to be also in Eng- 
land, of the seven " Greater Arts " so-called from the four- 



32 POLITICAL ECONOMY. 

teen " Lesser Arts," and even a subdivision of the seven 
by which Cloth-making, Dyeing, and Banking held the very 
first rank. What Florence was in Tuscany, Milan became 
in Lombardy. This city was equally renowned in the Mid- 
dle Age for its manufactures of arms and armor, and for the 
elegance of its finery and its taste as the leader of fashions, 
whence came our good word milliner. 

WJiile in Provence, as its name implies, and Languedoc, 
some good points of the old law of Eome had no doubt been 
kept up, the provinces of France in the time under review 
were behind Italy and Flanders in the arts of buying and 
selling. The minute directions of Charlemagne, who gave 
much attention to the management of his own estates, are 
still extant, some of them sound, and all of them curious. 
In his Capitularies, and especially that entitled De VMis, 
we find, for example, these; — "Each of our estates shall 
be provided with good feather beds, mattresses, coverlets, 
copper vessels, lead, iron, wood, chains, pot-hooks, hatchets 
and augers, so that nothing will have to be borrowed of any 
one." " The eggs not needed for consumption on the farm 
shall be sold." "It is important that we know how much 
all these things yield us, namely, cattle, mills, woods, ships, 
vegetables, vineyards, wool, flax, hemp, fruits, bees, fish, 
skins, wax and honey, old and new wines. Every thing that 
has not been consumed in the service of the king must be 
immediately sold." " Cows, breeding-mares, and sheep must 
be multiplied." " I wish also a good account to be rendered 
me of the horns of my bucks and of my goats, as well as of 
the skins of my wolves taken in the course of each year. 
In the month of May, let terrible war be made without fail on 
the wolves' whelps." " The very pious lord our king has de- 
cided that no man, whether ecclesiastic or layman, either in 
time of abundance or time of scarcity, shall sell provisions 
higher than th°. price recently fixed per bushel." This prin- 
ciple became afterwards the famous maximum, of history. 
But he forbade the exportation of grain in times of scarcity 



HISTORY OF THE SCIENCE. 33 

on pain of confiscation. He put men on the frontiers, and 
guard-boats at the mouths of rivers, to encourage and defend 
the trade with foreigners. He undertook to dig a canal to 
join the Rhine with the Danube. He ordered a uniform sys- 
tem of weights and measures throughout his empire, punished 
the makers of counterfeit money, and forbade monopolies. 
Usury is often denounced in the capitularies, and the emperori 
himself fixes the rate at which money shall be loaned in his 
dominions. 

But Feudalism was as hostile to progress in France as else- 
where. The lords of the land were the foes of the aits. 
They scorned to work themselves, and the}* despised *he 
men who worked, but in some way their own needs must be 
met, and so by degrees the money of the lords raised by 
taxes or pillage passed over to the men of the shop, who 
fiurnished the former their silks and woollens, their gloves 
and helmets, their arms and armor. This process was has- 
tened by the compact organization of the trades made in 
the time of St. Louis. Some of these trades were then 
very old. " The marchands d'eau at Paris are probably the 
direct descendants of the Parisian nautes." A charter of 
the butchers in 1134 speaks of their "ancient chopping- 
blocks." Leather-dressers, purse-makers, and cobblers, seem 
to be among the oldest. St. Louis intrusted to fitienne 
Boyleau of Paris to make rules for the guidance and control 
of all the different artisans, each kind becoming thus a body 
by itself ; and his " Book of Trades," still extant, organizes 
and subjects to rules more than 100 separate industries 
as then practised. These rules are minute, cumbersome, 
and would now be intolerable, but they had this gain, 
that they strengthened by discipline and union under royal 
authority the middle and lower classes as against the lords 
of the soil; and these now organized trades in tain gave 
great strength to the communes, as tlic town governments 
in France were then and are still called. The communes 
became gradually freed from the feudal lords in like ways 



84 POLITICAL ECONOMY. 

with the towns in England, and so little by little as liberties 
increased became what they now are, — the seats of busy 
exchanges. The oldest commune is that of Mans, formed 
by revolt from William the Conqueror in 1067. Three hun- 
dred years later they became of great importance all over 
France, and after much decline were reorganized by law in 
?791, and are now, 35,985 in number since the loss of Alsace 
and Lorraine, the vital units of administrative government. 

In this long stretch of more than 1100 years no great 
names shine forth to illumine Political Economy. No Aris- 
totle and no Adam Smith appear in the life-time of the 
Greek Empire. No great interest seems to have been felt 
by anybody in the inmost nature of those commercial trans- 
actions that were then multiplying in all the nations of 
Europe. Perhaps the most memorable words in an economi- 
cal point of view that meet us in this long interval are those 
of a Venetian doge, Thomas Moncenigo, spoken to the 
Grand Council in 1421 : — "You are the only ones to whom 
land and sea are equally open. You are the channel of the 
opulence, and the providers for the wants, of the entire world. 
The whole universe is interested in your fortune. All the 
gold of the world comes to you. Fortunate, so long as you 
hold to pacific ideas, while all Europe is on fire. As for 
me, so long as there remains in me a breath of life, I will 
persist in this, that we must love peace. What will you 
sell to those of Milan, when you shall have ruined them? 
What will they be able to give you in exchange for your 
products? And your products, what will become of them 
in the exigencies of a war which will encroach on the capital 
you need to create fiem ? I have always tried to take meas- 
ures that the interest of the loans and all public expenses 
be promptly met every six months, and I have had the good 
fortune to succeed. If you continue in this course, you 
will become formidable, and the possessors of all the riches 
of the christian world. God will punish you for touching 
the property of others, and for making war unjustly. Then 



HISTORY OF THE 8CIENCE. 35 

those who had 10,000 ducats will have no more than 1,000, 
and those who had ten houses will be reduced to one. No 
more property, no more credit, no more reputation. From 
the masters that you were, you will find yourselves subjects, 
and of whom? Of military men, of soldiery, of those bands 
whom you are keeping in pay.'" 

One little treatise, however, written in 13G0 by a French 
bishop, Nicole Oresme, murks for our science one bright 
spot in the Middle Age. It is a Latin tract on Money, which, 
after having been long lost to the world, was discovered 
about the middle of the 19th century by the German econo- 
mist, Roscher, and translated into French by another econ- 
omist, Wblowski. The good bishop was moved to his work 
by the wretched state of the coins of France in his time. 
"The origin, nature, right, and changes of Moneys " is the 
title of the tract, and it shows signs both of learning and of 
scientific analysis. An error of Aristotle is reproduced in 
it under the same rhetorical figure ; — "It is monstrous and 
contrary to nature, that a barren stock should give birth, 
that a thing sterile in its whole being should fructify and be 
multiplied from itself, and such a thing is money." A ran- 
dom dictum of Aristotle made the taking of interest on 
money seem wrong to some for a couple of millenniums. 
Even Shakspeare catches up the old figure : — '* Is your gold 
and silver eivcs and rams?" Shylock answers: " I can- 
not tell; I make it breed as fast." Oresme understood well 
the principle of seiguorage ; — "As money itself belongs to 
the community, so it should be fabricated at the expense 
of the community." He knew well also the great truth, that 
was constantly broken by the princes of his time, that the 
worth of coins hangs only on the purity and weight of the 
precious metal contained in them. 

Perhaps in consequence of the dearth of any deep thought 
on our theme during the Middle Age, the germs then hecome 
visible of the second Theory of Saies. It is called the Jfi r- 
cantile System. It was not known under that name, nor 



36 POLITICAL ECONOMY. 

was it developed in any fulness, until the next age ; but we 
can detect its beginnings before the fall of Constantinople 
both in Italy and in France. It is an Illustration of the con- 
tinuity of human thinking as well in wrong as in right direc- 
tions, that the second theory is a prolongation and expansion 
of the first. That gave an undue weight to gold and silver 
over other goods in trade, and forbade their export : this did 
the same thing too, but also tried to swell the exports of 
other goods beyond the worth of current imports, so as to 
get a balance of gold and silver paid. Gold and silver are 
the things to get; they are worth more than what they will 
buy : therefore, let us get all of these in that we can, and let 
as little of them out as we can; and let us work all our trade 
so, that others shall have to give us a balance bach in gold 
and silver. These false postulates and inferences wrought 
centuries of woe in the world of commerce. The great facts 
will come in on a later page ; we look now only at the germs 
of a bad growth. Phillippe le Bel of France, in ordinances of 
1303 and 1304, put his hand in as king to mend the move- 
ments of trade, to forbid the export of gold and silver, to fix 
the price of wheat and to forbid its export, and to lessen 
imports by prohibitions. " Considering that our enemies 
might profit by our provisions, and that it is also important 
to leave them their merchandise, we have ordered that the 
former shall not be exported nor the latter imported." So 
Venice, which had started in freedom, declined into re- 
straints. The port was open to the goods of the -world, but 
only Venetian ships with Venetian captains could bring them 
in. Foreigners could neither build nor buy ships in Venice, 
and must pay customs-duties twice as high as natives. 1 

5. In any sketch of the buying and selling of the modern 
nations, and of the thoughts of their citizens in relation to 
that, there are good grounds which will appear as we go on 

1 Green's England, i., Hi., chaps, i.-iv.; Gibbon's D. and F. vii. 99, and x. 110; 
Blanqui, Hist. Pol. Econ. passim in chaps, xii.-xx. ; McCulloch's Com. Diet., Arts. 
Wool and Silk; Appletons' Cyclo., Arts. Commune, Cordova, and Italy; and Web 
ster's Diet, sub verbis Milliner and Florin. 



HISTORY OF THE SCIENCE. 37 

for putting France first in the list. The French are apt to 
do well what they think worth doing at all, and to say well 
what they think worth saying at all. Like other nations, 
they have made vast economical mistakes in the modern age, 
but also they have made contributions to our science of the 
first importance. The Protestant Reformation, which tended 
to reform industry as well as religion and demanded the 
right to work and sell as well as to think and pray, did not 
do so much for France as for Germany and the Low Coun- 
tries, in which latter and in Spain the reactionary, cen- 
tralizing, and tyrannical policy of Charles V. and his worse 
successor put back the hand on the dial of progress. Still 
the Huguenots invented great improvement in agriculture 
and manufactures ; and both before and after the revocation 
of the Edict of Nantes in 1685 carried these improvements 
to Flanders, England, Switzerland, Prussia, New England, 
Virginia and South Carolina. The silk culture had come 
over into France from Italy in the 40 }-ears ending in- 1520, 
and had found a home especially in Tours, Lyons, and the 
towns of Provence ; and after the revoking of the edict of 
toleration, this industry among many was carried abroad. 
About 50,000 Huguenots settled in England, and those who 
knew the silk business gathered in Spitallields, where they 
introduced very soon several new branches of the art, though 
England then admitted silks freely from all the world. In 
Prussia they set up works (new there) for making cloth, 
serges, bunting, small goods, druggets, stockings woven on 
frames, caps, and hats made of skins, and dyes of all kinds, 
while Berlin took the goldsmiths, jewellers, clockmakera and 
6culptors ; in the Netherlands they cultivated tobacco, and 
made of the sandy lands excellent kitchen gardens for fruits 
and vegetables ; and into this country they brought the olives, 
the mulberry, varieties of pears still cultivated, and advanced 
modes of farming. 

Just as some individuals in all times have thought it wise 
to try to cheat others in trade, and so get the whole gain to 



38 POLITICAL ECONOMY. 

themselves, so some nations have worked for long stretches 
of time to handle their trade in such a way as to get to them- 
selves the sole profit, forgetting the grand truth that all 
trade alike — whether domestic or foreign — must be fair to 
both sides and mutual in its gains, or else it will cease of 
itself. France seems to have been the first nation to try 
this trick on a great scale, and thus to give voice and form 
to the Mercantile System. In the very year (1572) of the 
massacre of the Huguenots, and in the city (Paris) which 
was its chief scene, and by the king (Charles IX.) who was 
the chief actor in it, was issued the following decree : — " In 
order that our said subjects may better devote themselves to 
manufacture and working in wools, flax, hemp and yarns, 
which are increasing and abound in our said kingdoms and 
countries, and may make and realize the profit from them 
which foreigners do, who come here and buy them usually at a 
low price, transport them and work them up, and afterward 
bring the cloths and linens which they sell at a very high 
price; we have ordered and do order that it shall hereafter 
be allowable to no one of our said subjects and foreigners 
for any cause or under any pretext whatsoever to trans- 
port out of our said kingdom and country any wools, flax, 
hemp or yams. We also very expressly forbid all entrance 
into this our said kingdom of all cloths, linens, gold or 
silver laces and ribbons, as well as all velvets, satins, damasks, 
taffetas, camlets, linens, and all sorts of stiffs striioed or having 
in them gold or silver, and likewise all harness for horses, 
belts, swords, and dirks, spurs silvered or engraved, and 
stirrujos, under penalty of confiscation of said merchandise." 
The Protestant Sully, the finance-minister of the French 
king Ilenrj 7, IV., seems to have been the first man in high 
authority who studied thoroughly the whole subject of buy- 
ing and selling, who devised a set of practical rules for the 
guidance of his policy in regard to these, and who was in 
position in spite of many hindrances to carry his policy 
into execution. He had some very good points, and some 



HISTORY OF THE 8CIENCE. 39 

very bad ones, and the two were well mixed up in bis sys- 
tem. Of tbe first sort were these: — lie thought that the 
debts of the State should be managed just like those of an 
individual, that is to say, paid off iu the shortest practicable 
time, and so his first care as minister was to ascertain their 
exact amount — 332,000,000 francs in lo'Jo — and to reduce 
and remit taxes on his principle that the people must pros- 
per in order that the revenue may be large, and then to pay 
off the entire debt, which he did in a few years. He 
thought the ways of letting money out of the treasury quite 
as important as the ways of getting it in, and amid great 
opposition he stopped the leaks iu the treasury, and was 
perhaps the first to lay down the maxim that specific parts 
of the revenue must be rigidly applied to specific parts of 
the expenses, a method now praised and practised in the 
United States. He thought that better means of internal 
transportation would foster the growth of .France, and so he 
improved the highways and organized post-houses along 
them with relays of horses for travellers, and dug the first 
canal in France — the canal de Briare opened in 1G42 — to 
connect the Seine and the Loire, and he also placed public 
barges on the main rivers. He thought, too, that agriculture 
lay at the root of national opulence, and so he suppressed 
tolls, removed various obstructions, and made free the 
domestic trade in grain. "Of the second sort were these : — 
He thought that manufactures were parasites on the State, 
and quarrelled with his king about the mulberry trees and 
the silk fabrics that were then coming into prominence in 
France, and combined with a sort of Aristotelian aversion 
to mechanical labor a kind of stoic indifference to articles 
of comfort and luxury. He thought that France was suffi- 
cient unto itself in trade, and so sought to suppress within 
the realm the circulating moneys and commodities of other 
nations, saying with short-sighted folly. — " It is still more 
necessary to do without the commodities of our neighbors, 
than without their money ; the necessity people impose on 



40 POLITICAL ECONOMY. 

themselves of dressing in certain materials rather than 
others is only a fault of our fancy, but the price we pay for 
them is a wrong done to ourselves with full knowledge of 
the case." He thought consequently that gold and silver 
ought not to be exported from France, and punished severely 
the taking them out, and passed sumptuary laws to reduce 
public and private expenses, and kept up the toll-barriers on 
the Rhone to keep out the commodities of Italy, and became, 
in short, a stern propagator of the Mercantile System, the 
principle of which system was never better expressed than 
by a Spaniard, Ustariz, in 1740, — " It is necessary rigor- 
ously to employ all the means that can lead us to sell to for- 
eigners more of our productions than they will sell us of 
theirs, as that is the whole secret and the sole advantage 
of trade." Sully also drew a false analogy between the 
materials of war and a stock of coin in the coffers of the 
State, and so bad vaults made in the Bastile into which 
he gathered as a reserve for contingencies a sum which 
amounted at the death of Henry IV. in 1G10 to 42,000,000 
francs. Henry was riding to visit Sully, then sick, when 
his life was cut short by the dagger of the fanatic Ravaillac 
in one of the narrow streets of Paris. 

Two years after Sully ceased to- be minister, that is, in 
1613, the earliest general treatise on our theme, and the first 
to bear the title of Political Economy, was issued at Rouen 
by Antoine de Montchrestien. He combats some of the 
points of that minister, while he treats at length of the util- 
ity of the mechanic arts, the regulation of manufactures, 
the trades most important to communities, commerce, trans 
portation, and Money. 

If we balance in our minds the good done by Sully with 
the evil, and close the process perhaps in a doubt, there can 
be no doubt at all that the good done by Colbert, the greater 
minister of Louis XrV., far outweighed the evil. Sprung 
from a race of merchants, himself apprenticed young to a 
woollen-draper, of a slow but grasping mind, hungry for 



HISTORY OF THE SCIENCE. 41 

facts and able to interpret them, orderly in plan and bold 
as a lion, Colbert will always be a great figure in French 
history and economy. The last words of the great Cardinal 
Mazarin to the young Louis were: — "Sire, I owe every 
thing to you ; but I pay my debt to your Majesty by giving 
you Colbert." Like Sully, Colbert looked at all things 
from the practical side ; unlike him, who was of noble birth, 
Colbert, who had brains aud not birth, was vexed in all his 
course by those who had birth but lacked brains. Even his 
king, who placed him in 1GG1 in virtual charge of the trade 
and taxes of France, gave him full support but for eleven 
years, and for eleven years more till the death of the minis- 
ter in 1683 paid but partial heed to his counsels. His grand 
and simple plans, marred by one grand mistake, were car- 
ried out in the midst of and in spite of hostile opinions, 
wasting wars, and wavering support. 

His first maxim was, to reduce and simplify the internal 
taxes, on the sound principle that the public treasury pros- 
pers just in proportion as private production prospers. 
Says Henri Martin, — "We are struck with admiration to 
see Colbert begin by reducing an impost 33 $, on the in- 
creased product of which he founded in great part his 
hopes." He abolished many taxes altogether, and made 
the rest bear as lightly as possible on the poor. The result 
of this and other efforts was, that whereas he found the 
gross revenue 82 millions and the cost of collecting it more 
than 50 millions, he left the gross revenue 113 millions and 
a cost of collection 2G millions, an exhausting war, too, 
having intervened. Another maxim was, to revise aud 
reduce the swollen claims of creditors, to lighten the com- 
munes of their old debts and forbid their incurring new 
ones, to abolish superfluous offices and then hold each offi- 
cial to a strict account, and thus and otherwise to lessen the 
public expenses and reform the administration. A third 
maxim was, to encourage agriculture by directly lessening its 
burdens, by permitting the freest possible circulation of 



42 POLITICAL ECONOMY. 

its produce within the realm, by favoring the introduction 
and increase of live stock, by improving all the old ways of 
communication, and by creating new ones such as the great 
canal of the Two Seas. A fourth maxim was, to assure all 
men and especially all traders at home and abroad security 
of person and property. Sully scorned manufactures ; 
Colbert justly gloried in them, and outran himself and the 
truth of his system to enliven and diversify them, as we 
shall see. Still another point of his policy may be given hi 
his own words: — "The maritime commerce of the whole 
world is carried on with about 20,000 ships. In the natural 
order, every nation should have its share in proportion to its 
power, the number of its people, and the extent of its sea- 
coast. The Dutch have 15,000 or 16,000 of this number, 
and the French 500 or 600 at the most. The king employs 
all sorts of means which he thinks to be useful in order to 
come a little nearer the number that his subjects ought nat~ 
urally to have." 

Unfortunately for his own age and all the ages since, Col- 
bert was also in part a disciple of the Mercantile System. 
He thought that he could so manage the foreign trade of 
France that she should get the better of her neighbors : he 
thought he should be able more or less to drain the gold and 
silver from them to her. Let him sum up his plan in his own 
words : — "To reduce export duties on pi ©visions and manu- 
factures of the kingdom ; to diminish import duties on every 
thing which is of use in manufactures ; and to repel the 
products of foreign manufactures by raising the duties." 
This is the mercantile system pure and simple : the end in 
view is to get gold and silver into the kingdom by selling 
much merchandise and buying little. Curiously enough tin's 
plan had been shown to be delusive in all its parts by the 
petition of the merchants of Paris addressed to the king in 
1654, ten years before Colbert embodied his plan in the 
tariff of 1664. "Sire, experience teaches that excessive 
taxes have never increased the revenues of a State, because 



HISTORY OF TUE SCIENCE. 43 

they cause a loss on the whole of what is gained on the farts. 
In fact, only commerce and manufactures attract the gold and 
sUver by which armies subsist. If our workmen profit by 
their industry, it is not without the help of foreigners, who 

furnish us all the fine wools, for we have only coarse ones, 
as well as the drugs for dyes, the spices, sugars, soaps and 
leathers, which we cannot dispense with and which are net 
found in the kingdom. Fori igners will nut fail to retaliate, 
by laying heavy duties on all these commodities ; whence it 
will come to pass that we shall obtain no more, or that they 
will prohibit the admission of our manufactured products; 
consequently our workmen will be ivithouf emjiloyment, and 
the number of useless ones and of beggars will increase." 

Nevertheless, Colbert's work in its whole aggregate caused 
France to begin to prosper mightily ; and manufactures in 
particular, which Sully had frowned on, seemed to feel the 
impulse of the new policy ; and Colbert was led on by this 
mere seeming to lay down the third historical Theory of 
Sales, namely, what has been called the Protective System. 
His tariff of 16G7 was the first Protective Tariff so-called. 
That is to say, it was the first formal schedule of tariff-taxes 
laid for the avowed purpose of cutting off competition from 
home manufacturers in order to raise the price of their wares. 
This scheme grew right out of the mercantile system, and 
would never have been thought of but for that, just as the 
mercantile system itself grew right out of the bullion sys- 
tem, and would never have been thought of hut for that. 
"Protection" was an afterthought in its very birth — an 
outgrowth of a confessedly false system. The effects pre- 
dicted by the Paris petition followed at once. The new 
tariff shut out many kinds of Dutch goods : the Dutch argued 
and expostulated a while in vain, and then acted: French 
wines, brandies, and manufactures were shut out of Holland 
by the same means. Henri Martin, with whom Colbert is 
a hero, acknowledges these natural consequences of his 
action. Agriculture, which had had a hard blow on one 



44 POLITICAL ECONOMY. 

cheek by the prohibition to expprt grain as a part of the 
mercantile policy, now took another hard blow on the othei 
cheek by the loss of the market for wines and brandies as a 
part of the protective policy. War soon followed with Hol- 
land, — the first of a long series of commercial wars that 
have cost plenty of blood and tears. 

It is said of the vegetable world, that the poison and its 
antidote often grow near each other in space ; at any rate, 
this vitally bad principle of Colbert was corrected in whole- 
some words by a man who lived near to him in time. This 
was Bois-Gruillebert, a provincial magistrate of Rouen. He 
looked at things on the theoretical side. So far as it new 
appears, he was the first man in the world, who gazed 
steadily into the inmost nature of trade and brought back a 
true analysis of it. In the midst of much that is false and 
more that is crude, we find in the books of this shrewd Nor- 
man such golden sentences as these : — Every seller must be 
a purchaser, and every purchaser a seller. Every exchange 
must be profitable to two parties, and thus be in the genera' 
interest. The liberty and competition of producers is re- 
quisite to the interest of all. When the cultivator of the 
soil, the base of society, grows poorer, his poverty involves 
the ruin of the rest. The interest is one, not only of man 
with man, of province with province in the same state, but 
also of nation with nation. Nature demands the liberty of 
industry, and this liberty alone can paralyze the efforts of 
special cupidity and selfishness. To Nature and not to men 
belongs the police of the economic order. 

France kept slipping back all the time from the reforms 
of Colbert, the privileged classes kept themselves exempted 
from most of the burdens of the State, abuses in taxation 
and administration multiplied, till a hand, that had already 
traced with wonderful skill the exterior defences of France 
in war, traced also in peace her internal condition in these 
lines: — "Nearly a tenth part of the people is reduced to 
mendicity ; of the nine remaining parts, five can give no 



HISTORY OF THE SCIENCE. 45 

alms to the first, from which they scarcely differ; three are 
in very straitened circumstances ; the tenth does not number 
over a hundred thousand families, of which there are not ten 
thousand that are completely at ease." That hand was 
Yauban's, a man better known as a worker and writer on 
Fortifications, but who also must always be named with 
honor in any sketch of Economics. What he had seen in 
every part of France where he had planted a fort to defend 
it stirred him to write a book which he entitled the Royal 
Tithe, the principle of which was, that every subject in the 
realm ought to contribute to the needs of the State in pro- 
portion to his income, that all the hitherto privileged nobles 
and clergy should pay this tax with the common people, that 
this should be the only direct tax in the kingdom thus re- 
leasing an army of the old tax-gatherers, and that the rate 
of it should slide according to the needs of the treasury from 
the semi-tithe or one-twentieth (artisans and laborers paying 
only one-thirtieth) to the entire tithe or tenth in case of 
necessity. The taxes at that time came wholly out of 
capital, and for the most part out of the capital of the poor : 
Vauban would take them wdiolly out of revenue, and from all 
classes of the people who had revenue. This plan of taxing 
was simple and grand and just, and for that very reason was 
condemned by the royal council in the year of its author's 
death (1707). 

France worried along, most things getting from bad to 
worse, in spite of brilliant philosophies and an elegant litera- 
ture, without much that was new on our theme, till in the 
Qrst decade of the second half of the eighteenth century, 
Quesnay. physician and surgeon and friend to Louis XV., 
developed a set of economic doctrines very celebrated in 
their time and influential in results in all time since. The 
numerous disciples of these doctrines, with their tcacner, 
constituted the first great School in Political Economy, and 
are called sometimes "Economists," sometimes ' k Physio- 
crats," and sometimes (and best) the " Agricultural School." 



46 POLITICAL ECONOMY. 

There had been every now and then an outburst of common 
sense against the protective system of Colbert and the re- 
taliations of foreigners that had of course attended it. The 
tradition is, that the merchant Legendre had replied to Col- 
bert himself, when the minister asked, " What can we do to 
aid you?" " Laissez faire" — Let us alone. Gournay, 
the intendant of commerce, himself a merchant, the friend 
and helper of Quesnay, is the real author of the celebrated 
sayiug, — Laissez faire et laissez passer, — Let us alone 
and keep the wats free. Gournay attacked the restric- 
tions of that day on the commercial side, Quesnay on the 
agricultural side, and thus they worked together, while the 
great Turgot became the disciple of them both. There had 
been some reaction all along from the artificial manufactures 
of Colbert towards the earlier and simpler maxim of Sully, 
— " Tillage and pasturage are the two breasts of the State ; " 
then the collapse of John Law's famous credit-system in 
1720, and the loss thereby of nearly all fortunes except 
those invested in lands ; and then the subdivisions and im- 
provements in lands consequent on Law's gigantic opera- 
tions, — all these had caused the French to look away from 
the more transient values of credit and merchandise to the 
most stable of all possessions, the land on which they trod. 
The way was thus prepared for Quesnay, who was son of a 
small land-proprietor and advocate, and who carried his 
simple tasks and interest in rural matters through a long life 
at Versailles. 

Quesnay's whole system was broader than any mere aco- 
Domic system can be, in that it involved a system of Society 
and of Government as well as of Economy, in which last 
respect alone we are now to look at it. Quesnay saw in the 
agriculture of his time, what has been seen in the agriculture 
of all times, that the produce of the land, after paying the 
immediate expenses of its cultivation to the man who tilled 
it, afforded also an additional sum in the shape of rent to 
the man who owned the land. This additional sum he called 



nisTonr of the science. 47 

Net Product. On the other hand, he saw that mere labor 
put forth on any thing else than laud only obtained fair 
wages for itself without any net product remaining. There- 
fore he called labor put forth on the laud Productive, and all 
other labor Unproductive, not because the latter is not use- 
ful, but because there is nothing in the result over and above 
a return for the labor. What he failed to see was, the 
difference between the results of labor assisted by capital 
and those of labor not so assisted. In truth, he utterly 
mistook the nature of rent. As we shall see by and by, land 
is only a form of capital, and the rent paid for its use is 
nothing but profit to the owner of this capital, so that in 
reality the produce of the land pays for wages and profits 
and nothing more. All other products made by the union 
of labor and capital must do the same or cease to be made. 
There is, then, no such distinction as that drawn by (^uesnay 
between Productive and Unproductive labor, and there is no 
net product at all, such as he supposed. But if there were, 
then it would follow from that, (1) that the only new values 
possible must come out of the earth itself ; (2) that the pro- 
prietors of the soil are a special class of men hy themselves ; 
(3) that all taxes to government should be paid by them 
alone, since no others have any net product; (-1) that every 
restriction on the sale of produce at home and abroad should 
be removed as Lessening the net product ; (.">) that all at- 
tempts to foster manufactures artificially are worse than 
futile as involving no possible gain, and that every obstacle 
to the freest sale of mere labor and its results should every- 
where be abolished at once. These economic inferences, as 
well as others both social and political, were drawn out 
logically from the premises. While the system had plenty 
of errors in it, it had also this grand truth, that all value 
turns on exchange. Quesnay says: — "We must distin- 
guish between biens (goods), which have value in use and 
not value in exchange, and richesse (salable things), which 
have both value in use and value in exchange. For example, 



48 POLITICAL ECONOMY. 

the savages of Louisiana enjoy many Mens, such as wood, 
game, fruits of the earth, which are not richesse because they 
have no value in exchange." So Le Trosne, one of Ques- 
nay's many disciples, says : — "Value consists in the relation 
of exchange which exists between such and such products. 
In a word, the quality of richesse supposes not only a useful 
property, but also the possibility of exchange, because value 
is nothing but the relation of exchange. The earth in truth 
only gives products which have the physical qualities to 
satisfy our wants ; it is exchange that gives them value ; a 
quality relative and accidental. But as it is the products 
themselves which are the sole matter of exchange, it follows 
that we can say with truth that it is the earth that produces 
not only all Mens but also all richesse." 

The whole school made a botch of the bad word " wealth," 
and wrongly drew from their wrong main point that material 
things alone are valuable, forgetting that even the ancients 
conceded that labor may be sold and rights may be sold in 
the same way as material things are sold. Their otherwise 
clear vision, however, emancipated them from most of the 
errors of those who had gone before, at once from the bullion 
theory, the mercantile theory, and the protective theory. 
Mercier de la Riviere, one of the brightest of them, well 
says : — " Let me be permitted to repeat here that money does 
not rain down into our hands, does not grow in our fields, in 
nature. To have money, we must buy it; and after that pur- 
chase, one is no richer than he was before : he only receives in 
money a value equal to that he has given in merchandise. An 
agricultural nation is very rich, people tell us, when we see 
much money there; people are doubtless right in saying so, 
but they are wrong not to see also that before acquiring that 
money it was equally rich, since it possessed the values with 
ivhich it paid for the money; it cannot even enjoy that wealth 
in money without making it forever disappear, unless it main- 
tains it by the reproduction of the vcdues whose sale, or rather 
exchange, has procured for it money wealth : so this wealth 



HISTORY OF THE SCIENCE. 49 

In money is only a secondary wealth representative of a pri- 
mary toealth for which it is substituted." These physiocrats 
were every one champions of the freedom of trade. It was 
a maxim with Quesnay : — " Let entire freedom of commerce 
be maintained; for the truest, surest, and most protitaUe 
regulation of commerce, both internal and external, consists 
in entire freedom of competition." Louis XV. called Ques- 
nay his thinker (penseur)., aud the epithet belongs to the 
school. They were good men, too, disinterested, philan- 
thropic, and moved by strong sympatlvy for the masses of 
the people, while they attacked neither throne nor altar. 
One of them, the elder Mirabeau, though he abused his 
more gifted son, called himself the "friend of men," aud 
put the work of Quesnay in point of benefit to mankind on 
a level with the invention of money and the invention of 
printing. 

Before Quesnay died at 80 years of age in 1774, he had 
the satisfaction of seeing his disciple Turgot, who was also 
the friend and disciple of Gournay, enter the government as 
comptroller-general of finances, and begin at once on a great 
scale in spite of tremendous opposition to carry into practi- 
cal effect the views of this school. The first fruit of physio- 
cratic doctrine was the announcement of future freedom of 
trade in grain, both internal and external. This gave rise 
to the so-called Flour War. Then followed an edict for the 
abolition of all compulsory labor for the state or for feudal 
lords. Says Turgot: — "God, by giving man wants, by 
rendering the resource of labor necessary to him, has made 
of the right to icork the property of every man; and that 
property is the first, the most sacred, the most imprescriptible 
of all." Then followed an edict for the suppression of 
masterships, and trade corporations of all kinds, and con- 
firming the full liberty of every citizen to undertake any 
kind of manufacture in conformity with natural right. An- 
other edict made the commerce in wine free throughout the 
kingdom on the payment of a moderate tax. Another les- 



50 POLITICAL ECONOMY. 

sened the odious salt-tax. Still another proposed i single tax 
on land in lieu of some other existing taxes. Associated 
with Turgot in the administration was Malesherbes, another 
physiocrat with similar aims, and the two fell together in 
1776 before the united opposition of the official and privi- 
leged classes of France. Malesherbes described Turgo'j as 
(he "mem with the heart of L'Udpital and the head of 
Bacon; " and what posterity thinks of Malesherbes may be 
seen in the broad avenue of Paris dedicated to his name 
with imposing ceremonies in August, 18G1. The strong 
sway over men's minds and hearts gained by this great 
school is shown alike by the French help in the American 
War of Independence and by the steady oncoming of the 
French Revolution, in whose councils passed the decree for 
the equal division of lands, which has been the strength of 
France ever since. 

The year 1776 is a great year in the history of Economics, 
as it is also in that of Politics. The germs of both the 
second and third Schools in this science sprang into life in 
that year. The second school, which we shall call the 
Commodities School, looks to Adam Smith as its founder, 
whose book was published in that year, and whose views 
will be given at some length in the next section. It is best 
to say right here, that the second ' school is the offspring of 
the first, just as the second theory of sales is the outgrowth 
of the first. Wonderful is the continuity of science. Adam 
Smith is the child of Quesnay, to whom he would have dedi- 
cated his book had the latter lived but two years longer. 
What Turgot, however, had already questioned, Adam Smith 
triumphantly denied, namely, the distinction drawn by the 
first school between Productive and Unproductive labor. 
The second school proved beyond a doubt that artisans and 
merchants and transporters are as truly productive laborers 
as the agriculturalists, but at the same time they included in 
labor only effort put upon material and tangible commodities. 
They proved also, contrary to the views of the first school, 



HISTORY OF THE SCIENCE. 1)1 

that in all sales of commodities both sides make a gain, 
owing to the diverse desires of the two parties to the sale. 
Both schools held alike for free trade though ou different 
scientific grounds. 

The same year Condillac, very distinguished as a meta- 
physician, issued a book entitled " Commerce and Govern- 
ment considered relatively to each other," which was not a 
successful work, as was Adam Smith's, but in which he laid 
the foundations of the third and only remaining School of 
Economics, which we propose to call the All Sales School. 
Condillac had been trained as a physiocrat and in some sense 
continued such, and the third school at any rate grew out of 
the first school just as indeed the second school did, and both 
in something the same way as the second and third theories 
of sales grew out of the first ; but he was also a metaphysi- 
cian of clear thought, and saw just as Adam Smith did the 
futility of the distinction between productive and unpro- 
ductive labor, and the certainty, too, that in sales both sides 
gain. He saw also the great truth that the Desires of men 
are alwaj'S the starting-point whenever any thing becomes 
valuable, and concluded from this that value resides iu the 
Mind only, and blamed the physiocrats for saying that value 
consists in the relation of one thing exchanged for another, 
and claimed that value may exist before an exchange takes 
place so soon as each party desires the product of the other, 
thus confounding value with estimation, which is only one of 
its elements. Still, as value iu his sense of it would lead t ) 
exchanges or sales, he defines our science as the " Science 
of Commerce " or Exchanges. This is a great merit. Here 
is a definition that just covers (and no more) the field of the 
science. His notion of value is indeed faulty, as we shall 
see, but his definition of the science will never be improved 
upon so far as its meaning is concerned. Sales may he or 
may not be, a better toord than Commerce or Exchanges. 
The definition involves that any thing of whatever kind ex- 
changed for something else comes within the view of the 



52 POLITICAL ECONOMY. 

science, and thus the third school happily escapes the limita- 
tions of the two others, namely, that material things alone 
are salable; although Conclillac himself did not fully realize 
how broad and strong he had made the science, and contin- 
ued to talk now and then about the earth as the source of 
all richesse and about the Net Product as the source of all 
taxation. 

On came the French Revolution like a flood, and its waters 
had scarcely subsided when, in 1803, Jean-Baptiste Say issued 
his book on Political Economy, which has continued a stand- 
ard work almost up to our own time. He is a great light 
of the second school ; for Adam Smith's book had been 
translated into French in 1781, and Say is an admirer and 
follower of Smith, although in no servile way. Without 
essentially going beyond the commodities school, Say admits 
much more fully than Smith does, immaterial services, like 
those of a physician, into his category of richesse. He 
divides his treatise into three parts, the Production and Dis- 
tribution and Consumption of richesse, borrowing these three 
terms of the physiocrats, but unfortunately treating them, 
as the physiocrats did not, as if each of these indicated a 
separate and independent process. With the physiocrats 
production meant the extracting of raw produce out of the 
earth, distribution the manipulating and transporting it, and 
consumption the final sale of it, — all really one indivisible 
process which they properly called commerce or exchange. 
But nearly all the writers of the second school have followed 
the bad example of Say in this respect, and some of them 
like the Walkers, father and son, in this country, have added 
a fourth division, Exchange, just as if there could be any 
production and distribution and consumption without ex- 
change. The progress of Political Economy on both sides 
the ocean has been much kept back by this strange abuse of 
originally safe and simple physiocratic terms. Besides, Say 
did not have much better luck with his word ' ' richesse ' ' as 
a term of science than Adam Smith had with his term 



HISTORY OF TIIE SCIENCE. 53 

"wealth; " for which neither is certainly much bO be blamed] 
since no one has ever tried to use either of these word - in 
science without making a hotch-potch of it. Still, in addi- 
tion to a clear and skilful exposition of the great subject in 
a general way, Say made one particular contribution to it ot 
grand importance. He demonstrated fully that there can 
never be a general glut of products in any market, because 
the more of some kinds exposed for sale, the better sale of 
other kinds in exchange for them. He says : — " A product 
is no sooner created than it affords from that instant a mar- 
ket for other products to the full extent of its oxen value. 
When the producer has put the finishing hand to his product, 
he is most anxious to sell it immediately lest its value should 
vanish in his hands. JVb?- is he less anxious to dispose of the 
money he may get for it, for the value of money is also per- 
ishable. But the only way of getting rid of money is in the 
purchase of some product or other. Tints the mere circum- 
stance of the creation of one product immediately opens a 
vent for other products." 

When Say first published this book in 1803, Frederic Bas- 
tiat was a boy two years old in Bayonne. Growiug up in a 
counting-room, travelling more or less in the neighboring 
countries with both eyes open, and giving all his leisure 
to the study of this science especially after 182."), Bastiat 
appeared in 1844 and onwards till his death by consumption 
in 1850, both in fugitive writings and in books, as a champion 
with the keenest blade in behalf of Property as then men- 
aced by the socialists, and in behalf of Trade as always 
menaced by the protectionists. '-Property is theft," cried 
Prudhon, the ablest of the socialists : on the contrary. Bas- 
tiat demonstrated with a point and pungency that proved 
a thorn in the side of his opponents, that Property is Bacrod 
in the hands of him who creates it or buys it, and that it is 
through the right to acquire it and exchange it freely that 
God designs the progressive amelioration of mankind. These 
writings were indeed rather controversial than constructive, 



54 POLITICAL ECONOMY. 

and Bastiat himself had not much better luck than others 
have had in wrestling scientifically with the word richesse, — 
athlete as he was he was thrown in that encounter, — but he 
gives after all a masterly definition and exposition of Value, 
effectually demolishes the vagaries of Communism, and 
demonstrates the harmonious mechanism of Society so far 
as exchanges are concerned. By far his most important 
work is the Harmonies economiques left incomplete at his 
death. His debt to the first school of Political Economy, 
the physiocrats, is plain enough, since his definition of Value 
as the relation between two services exchanged, and his dis- 
tinction between biens and richesse, are in substance the 
same as theirs, as one may see in the quotation already given 
from Le Trosne. His debt to Condillac, the founder of the 
third school, is plainer still, since his technical terms, such 
as "desires," "estimations," "services," "satisfactions," 
are largely the same as Condillac' s, and since the two alike 
exalt the action of the Mind in all matters of value, and 
extend the science so as to cover all sales whatever. Bastiat 
belongs fully to the third school. His debt, however, to his 
own genius and to the circumstances of his own time, is 
plainest of all. No economic writer has ever shown so 
much literary skill as he ; very few, if any, have surpassed 
him in clearness and power of thought. His wit enlivened, 
as his analysis illumined, the dark places of the general sub- 
ject. His special contribution to it, which is one of great 
importance, may be given in his own words. Though Value 
cannot exist separately from human efforts, Utility, or the 
mere capacity to gratify some desire, may reside in the mate- 
rials and forces of Nature. " But these natural forces in 
themselves and apart from all intellectual and bodily exertion 
are gratuitous gifts of Providence, and in this respect the., 
remain destitute of Value through all the complications of 
human transactions. This is the leading idea of the present 
work." 
For our present purposes there is no need of going into 



HISTORY OF THE SCIENCE. 55 

further detail in regard to the later economists of France. 
There have been a great number of these of sharp intelli- 
gence and varied view up to our own time, and so far as 
they have confined themselves to strictly economic discussion 
may be grouped in a general way into either the second or 
third school, for the first school, influential as it proved, is 
dead even in the land of its birth. But much writing that 
passes as economical is not really such. As Political 
Economy is the science of Sales, and as there can be no 
full stream of sales where the right to the varied results of 
past or present work for use or sale is denied, Communism, 
which denies the benefits of private property and demands 
community of goods in a society, and Socialism, which hates 
capital and gives to present work dominion over the accumu- 
lations of past work, are in all their manifestations non- 
economic, and the advocates of these theories push themselves 
by the strokes of their pens out of the pale of our science. 
There can be no science of sales with those who strive to 
give economic reasons for restricting sales. So, also, there is 
a large number of otherwise able writers, both French and 
other, who have not yet learned the radical difference be- 
tween Polities and Economics, and who try to cover both 
fields with one science, — a feat that cannot be done. Poli- 
tics is a far wider and more difficult and more incomplete 
science than ours, although the two touch each other at 
several vital points, as we shall see. Social Science so- 
called is another broad subject which is sometimes con- 
founded with Political Economy to the great detriment of 
the latter, whose sole field is buying and selling. Chevalier, 
professor of this science in the College of France, a friend 
and disciple of Bastiat, very distinguished for his part iu 
negotiating the commercial treaty with England in 18G0, and 
a gifted author belonging to the third school; Wolowaki, a 
native Pole but after 1834 a naturalized Frenchman, a 
teacher in the school of Arts and member of the Academy 
of moral and political sciences, the founder of the famous 



56 POLITICAL ECONOMY. 

scheme of Credit fonder, and a copious writer on economic 
subjects ; and Leon Say, a grandson of the great economist 
of that name, a long time the minister of Finance, and per- 
haps the most successful handler who ever lived of a great 
nation's great debts, — may serve as specimens merely of tlte 
French economists of our own day. 

The strong drift of French thought has been towards free 
trade with the rest of the world. This may be voiced for us 
by the celebrated Ftmelon in the third book of his Tele- 
maque : — '■'■Above all, never undertake to restrict the freedom, 
of commerce. The prince must never interfere with it for 
fear of restraining it, and he must leave all the profit of it to 
his subjects who have the labor of it; otherwise he will dis- 
courage them. He toill derive sufficient advantage from it 
through the great riches which ivill enter into his dominions. 
Commerce is like unfailing springs : if you wish to change 
their course, you will drain them." France has long been 
and is now a country prosperous by trade. The annual aver- 
age yield of wine for the half-century past is 1,000 millions 
of gallons, rising in 1875 to near 2,000 millions gallons, but 
sinking in 1880 to 675 millions gallons owing to the ravages 
of the phylloxera, the insect-pest of the vineyards. About 
4% of this wine is exported, and the rest is sold at home. 
The annual production of silk is worth 1,000 millions of 
francs. In 1871-72, France paid a war-indemnity to Ger- 
many of 5,000 millions of francs, besides spending three- 
fifths as much more in the costly struggle, and seemed soon 
after as busy and prosperous as ever, notwithstanding the 
change of government from empire to republic. These were 
the sums managed by L6on Say. Before the decade was 
over the annual foreign trade of France amounted to more 
than the cost of that war ; and the ordinary receipts of the 
treasury were 2,575 millions of francs in 1876. 1 

x Henri Martin's Age of Louis XIV., vol. i. chaps, i., ii., and vii. ; Martin's De. 
c\ * of the French Monarchy, vol. ii. chaps, iii., v., and vii.; Laveleye's New Ten. 
de ies of Pol. Econ., translated by George Walker; Blanqui's History of Pol. 
Ec\ i., chaps, xxxii. and xxxiii.; Say's Treatise of Pol. Econ., I. xv.; Bastiat's Har 



HISTORY OF THE SCIENCE. 67 

6. Next after France comes England in an}' line sketch of 
the modern growth of orir science. Indeed, as a rule, Eng- 
land has always managed her mutters of trade better than 
France ; but her thinkers on this theme, even if they have 
been more numerous and copious, came later upon the field, 
and have been less original. Historically considered, Eng- 
land has been rather an agricultural than a commercial or 
manufacturing country. ■ We have the statement of the 
Emperor Julian that, in the middle of the 4th century, a 
famine on the banks of the Rhine was averted by the impor- 
tation of corn from Britain. Sheep culture on a large scale 
began early, as we have seen already ; and the export of 
wool even in 1354 was 35,500 sacks, valued at £G a sack, 
and taxed rather more than 40% for export. Not many 
years after that, the exportation rose to 100,000 sacks a 
year. In 1GG0 the export of wool was strictly forbidden, 
under the notion which Colbert was fostering at the same 
time across the channel, that raw materials kept at home 
would enable a country to sell more of its finished products. 
This prohibition was not repealed till 1825 ; the import of 
foreign wool into England had always been entirety free till 
1802, between whieh time and 1828 it was burdened with 
heavy duties ; but the repeal of all these restrictions was 
followed by a large increase in the number and great im- 
provement in the quality of the sheep in the United King- 
dom, which amounted in 18G8 to 35,G07,812. Neither 
carrots nor turnips nor other edible roots were cultivated 
in England before the 16th century, when these and most 
of the garden vegetables were introduced from Holland, and 
the potato at the same time from America; tut onions and 
pease and cabbage, apples and Other fruits, and grapes also 
perhaps planted by the Romans, were grown with Buccesa 
before the fall of Constantinople. The cereals, and espe- 

monics of Pol. Econ., in the Introduction; Appletons' ami Ch.-.mbcrs' CycIopae.li.iK, 
under tit es Pol ileal Economy, Baatiat, Boliguillebert, Condlllar, Turgot, and 
other* 



58 POLITICAL ECONOMY. 

eially wheat, always have been and are still the chief crops 
of Britain. The old " three-field husbandry " of the Anglo- 
Saxons, by which a crop of wheat was followed regularly by 
a crop of barley, oats, or beans, and then the field left fal- 
low every third year, has been kept up in some of the mid- 
land counties till our own day. Beans have gone far to 
supersede fallows on strong loams and clays. The " four- 
course husbandry " of modern times, namely, wheat, turnips, 
barley, clover, still makes wheat the main thing ; and it is 
claimed that the average yield per acre, 28 bushels, is the 
largest in the world, and more than double the average yield 
in the United States. The total extent of the United King- 
dom is 76,300,000 acres, of which 26,300,000 acres are in 
mountain pasture and waste, and 50,000,000 acres in crops, 
meadows, permanent pasture, and woods. There were in 
1877 in wheat, 3,321,000 acres; barley, 2,652,000; oats, 
4,239,000; potatoes, 1,393,000; other green crops, 3,566,- 
000; grass under rotation, 6,441,000; permanent pasture, 
24,000,000; forest and plantations, 2,511,000; and in flax, 
hops, fallows, and so on, 1,877,000 acres. Notwithstand- 
ing a fertile soil and a skilful culture of it, and notwith- 
standing a cost of importation equal on the average to the 
rent of the land for a corresponding home production, in 
1880 that part of British bread made out of foreign wheat 
was larger than the other part, and one-fourth of the meat 
and dairy products eaten by the British people were im- 
ported from abroad. The entire value of the lands of the 
United Kingdom (including the mineral lands) has been put 
at no less a sum than £3,000,000,000 sterling. 

It was only in Queen Elizabeth's time that England began 
to be strictly a manufacturing and commercial country. 
The fall of Antwerp in 1585 transferred one-third of the 
merchants and manufacturers of the ruined city to the banks 
of the Thames, and from that day to this London has been 
the commercial mart of the world. The export of wool 
declined when the farmers' wives began everywhere to spin 



HISTORY OF TUE SCIENCE. 59 

their own wool into a coarse " homespun," and the weaving 
and fulling and dyeing of cloth spread out from the towns 
to the hamlets. Before Elizabeth died in- 1G03, we read 
of the worsted trade passing from "Worsted (a now almost 
forgotten hamlet of Norfolk) over the eastern counties, of 
the broadcloths of the "west of England" that then 
claimed and still claim the palm among woollen stuffs of 
that kind, of the coverlets of York, of .the cloth trade 
of Halifax, and of the cutlery of Sheffield. The linens 
of Ireland and Scotland came in later, and the weaving of 
silk was then just beginning, while Cornwall was still ex- 
porting its tin as of old, and the iron furnaces were blazing 
in Sussex and Kent. Commerce had just found a new path 
to Russia ; ocean ships were soon built bigger ; the old time 
fisheries of the Channel and of Ulster were extending to 
the banks of Newfoundland for cod and to the Polar seas 
for whales; John Hawkins began in 1562 the slave-trade 
from Africa, which, being immoral, proved a curse for more 
than two hundred years to all concerned in it ; customers 
from all sides dropped in on the British markets, for Sir 
Thomas Gresham, of whom we shall hear more by and by, 
laid the foundation at London of the Ro}-al Exchange in 
1566 ; coal came gradually into sale for use in the arts and 
manufactures and for domestic purposes also, until, in 1880, 
of the world's annual output of 300,000,000 tons, Britain 
furnished about one-half, and the United States only one- 
sixth ; the year 1770 is the great year in the history of the 
cotton industry on both sides the Atlantic, for it was in 
that year that Ilargreaves patented the spinning-jenny, and 
fabrics of pure cotton were first woven in England, ami 
that the first shipment of any importance of raw cotton 
(2,000 lbs.) was made from tLe United States; in 1871, 
just one hundred years afterwards, Britain imported 1,778,- 
139,776 lbs. of raw cotton, of which 1,038,677,920 lbs. 
came from the United States, ami the latter exported in all 
$218,527,109 worth of raw cotton that year; the processes 



60 POLITICAL ECONOMY. 

of spinning have been so improved that a single thread 
more than 1,000 miles long has been spun out of one 
pound of cotton, and the arts of weaving and printing the 
cloth so perfected that 4,500,000 of the people of BritaiD 
are said to be engaged in the industry as a whole, and Brit- 
ish export of cotton goods in 1875 was £70,900,000 ; colo- 
nies laid all over the world with a view to buy and sell goods 
with them have long been a point of English policy ; and, 
as a consequence of all this, in the amount and variety of 
her home and foreign commerce, in all the arts and modes 
of buying and selling, in the steadiness of coins and extent 
and solvency of credits, the United Kingdom has immensely 
surpassed every other nation in the world. 

Now, it could not be that these things should go on as 
they did on ship and shore, and no one give his thoughts to 
the core of these things and to the source of these gains. 
In fact, men thought a great deal about these things, and 
took sharp sides in relation to them on questions of taxa- 
tion, poor-laws, or other points of public policy. Some were 
for a broad trade, and some were not. Under the spur of 
difference and debate, tract after tract came forth in Eng- 
land, in some of which were reached bright glimpses of some 
of the great truths that make up our science. More or 
less the fetters of the mercantile system bound men's minds, 
but here and there and now and then the chain was 
snapped by a struggling thought that looked out into the 
realm of a free action. The best thing from an English 
source in the 16th century was the letter of instructions 
issued to Sir Hugh Willoughby when he started out in 1553 
for the exploration of the seas north of Europe, in the 
course of which one of his ships discovered Archangel. 
'•'•And if it be right and equity to shewe such humanitie to 
all men, doubtlesse the same ought chiefly to be shewed to 
merchants, who, wandering about the world, search both the 
land and the sea, to ca.rry such good and profitable things as 
are found in their countries to remote regions and kingdomes, 



HI STOUT OF THE SCIENCE. 61 

and again to bring from the same such things as they find 
there commodious for their own countries: both as well that 
the people to whom they goe may not be destitute of such com~ 
modities as their countries bring not forth to them, as that 
also they may be partakers of such things whereof they abound. 
For the God of heaven and earth, greatly providing for man- 
kinde, woidd not that all thiyigs should be found in one region, 
to the ende that one should have need of another ; that, by this 
means, friendship might be established among all men, and 
every one seek to gratijie all." 

Omitting the pamphleteers, who yet did good work in 
1 lshing their way into the wilderness to right or left, and 
thus pioneered the great writers who came after, — the phi- 
losopher John Locke must first be mentioned, whose treatise 
on Civil Government, written to justify the English Revolu- 
tion of 1G88, incidentally illustrates the vital distinction be- 
tween Utility and Value, and all but establishes this one of 
the fundamental truths of our science, namely, that Value is 
the birth of human effort, and not the gift of Providence. 
"For it is labor indeed that puts the difference of value on 
every thing. WJiatevcr bread is worth more than acorns, 
wine than water, or cloth or silk than leaves, skills, or moss, 
that is wholly owing to labor and industry. It is labor that 
puts the greatest part of value upon Land, without which it 
would scarcely be worth any thing. Supposing the world 
given, as it was, to the children of men in common, we oee 
how labor could make men disti7ict titles to the several panels 
of it for their private uses. For it is not merely the plough' 
man's pains, the reaper's and thrasher's toil, and the balers 
sweat, that is to be counted into the bread ice eat ; the labor 
of those who broke the oxen, who digged and wrought the iron 
and stones, who felled and framed the timber employed about 
the plough, mill, oven, or any other utensils, which are a 
number, requisite to this corn, from its being seed to be 
to its being made bread, that must all be charged to the ac- 
count o/Labour, and received as an effect of that ; nature and 



62 POLITICAL ECONOMY. 

the earth furnishing the almost worthless materials as in them- 
selves." These detached passages are an early, if not the 
very earliest, statement of a truth destined in our own day 
to transform the face of Political Economy ; but Locke him- 
self was hardly aware of its pregnant nature, and did not 
deduce from it the conclusions which it is well able to bear. 
Locke also did good service in the same reign by his tracts 
on Money, in helping to prevent the lowering of the silver 
standard, and in diffusing sound principles (not unmixed 
with several errors) on the nature of money. He justly 
taught that it was as wrong for the State to try to fix the 
price for the use of money (usury-laws) as to fix the price 
of cutlery or broadcloth. 

The historian Hume issued his Political Essays in 1752. 
The titles of some of these are, — "Of Commerce," "Of 
Money," " Of Interest," " Of the Balance of Trade," " Of 
the Jealousy of Trade," " Of Taxes," >' Of Public Credit." 
In these essays are at once to be recognized not only the 
clear-flowing style that makes it always a pleasure to read 
his History of England, but also some strangely liberal senti- 
ments on trade almost wholly emancipated from the mer- 
cantile system. But this must be remembered : the doctrines 
of Boisguillebert on free international exchange and the 
vanity of the so-called balance of trade and the impossi- 
bility of one nation's monopolizing the coin of the world 
had by this time become known in England, and Henri Mar- 
tin says that Hume was familiar with these doctrines, which 
takes off the edge of our surprise that the latter seems so 
far in advance of his times. But his merit is great notwith- 
standing. He ran into the very teeth of the opinion of his 
day; and whereas Boisguillebert was prolix and confused. 
Hume was terse and clear. For example ; — " Foreign trade, 
by its imports, furnishes materials for new manufactures; 
and, by its exports, it produces labor in particular commodi- 
ties, which could not be consumed at home. In short, a king- 
dom that lias a large import and export, must abound more 



HISTORY OF THE SCIENCE. 63 

with industry than a kingdom that rests contented with its 
own commodities." In the conclusion of the essay on the 
Jealousy of Trade occur these noble words : — " I shall there- 
fore venture to acknoiuledge, that, not only as a man, but as 
a British subject, I pray for the flourishing commerce of Ger- 
many, SjHiin, Italy, and even France itself." Perhaps there 
was no earlier hint of the great truth afterwards fully de- 
veloped by Say, that there can never be a general over- 
production, than these words from the essay on Commerce : — 
" If strangers will not take any part icidar commodity of ours, 
we must cease to labor in it. The same hands will turn them- 
selves to some refinement in other commodities which may be 
wanted at home; and there must always be materials for them 
to work upon, till every p>crson in the State who possesses 
riches, enjoys as great plenty of home commodities, and those 
in as great perfection, as he desires; which can never pos- 
sibly happen." On the subject of Money, Hume is less 
happy, although he casts some new light on it. He mars 
his discussion by assuming that a less quantit} 7 of the metals 
would answer every purpose of commerce as well as a 
greater, and have as much value ; which would only be 
true on the supposition that the less quantity cost as much 
effort to produce it, and its smaller subdivisions were as 
convenient in exchange ; and from this false assumption he 
deduces this very false inference: — " Were all our money, 
for instance, recoined, and a penny's ivorth of silver taken 
from every shilling, the new shilling would probably pur x-hu 86 
every thing that could have been bought by the old; and do- 
mestic industry, by the circulation of a great number of pounds 
and shillings, would receive some increase and encourage- 
ment." Are men, then, usually williug to receive \^ as 
equal to -}-§? 

In 177G, the same year in which Condillac put out his 
book already referred to, Adam Smith, who was the inti- 
mate friend of Hume, published k - An Enquiry into the 
Nature and Causes of the Wealth of Nations." He was 



64 POLITICAL ECONOMY. 

then fifty-three years old. Scotch born and trained, thougb 
he passed seven years at the University of Oxford, he be- 
came in 1752 Professor of Moral Philosophy at Glasgow, 
and issued in 1759 his "Theory of the Moral Sentiments," 
a book on which he supposed his lasting fame would rest, 
but which is now very nearly forgotten. His University 
lectures on natural theology and ethics were thus put in sub- 
stance into permanent form ; while his lectures given at the 
same time on jurisprudence and public economy, which have 
not been preserved, are thought to have been the nucleus of 
his later and far more famous book, since he is known to 
have advocated in them the doctrine of Free Trade, which 
was at that time held also by the most enlightened men in 
France, Italy, and Spain. Resigning his professorship in 
1763, he went the next year to France, where he resided 
nearly three years, and where he became intimate with 
Quesnay and other prominent physiocrats of the first school 
already characterized, whose doctrines are clearly seen to 
color many parts of his own book. Indeed, had not Ques- 
nay's death prevented it, the book would have been dedi- 
cated to him. So continuous is the growth of a science 
when once it begins, and so closely connected in its origin 
was the second school with the first. Returning to his 
native Kirkcaldy, where there is still a paved walk to the 
seashore called "Adam Smith's Close," and where the tra- 
dition is still alive, that he used to pace back and forth along 
the shore muttering and gesticulating, he passed there in 
retirement the ten years previous to its~ publication in the 
preparation of his famous book. It will be noticed that the 
publication took place in the very year in which the Inde- 
pendence of the United States was declared ; and this book 
itself was a sort of declaration of independence of the false 
principles and foolish policy of the mercantile system. Like 
the document of Jefferson, this also excited universal atten- 
tion : both alike mark an era ; and the results in the eco- 
nomical world of the treatise of Smith have been scarcely 



n I STORY OF THE SCIENCE. 65 

less striking and beneficent than the results in the political 
world of Jefferson's Declaration. Mr. Buckle goes so far 
as to say, that " Adam Smith contributed more, by the 2>ubli- 
cation of this single work, toivard the hapjjiness of man, than 
has been effected by the untied abilities of all the statesmen 
and legislators of whom history has preserved an authentic 
account." This is extravagant. So also is the general esti- 
mate put upon the book in Great Britain, as if it were wholly 
original, as if it had created our science, and as if its author 
deserved the title of "father" of the science. Political 
Economy has no father. There are elder brothers in that 
family, of whom the eldest is Aristotle, and prominent 
among the others will always be Adam Smith. Nulla est 
ars quce singidari consummata sit ingenio. No branch of 
knowledge is achieved by the genius of one man. 

Adam Smith, though not the founder of our science, is 
the true founder of the second school of it, which we have 
already called the Commodities School ; and to him more 
than to any other one man must be referred the fourth and 
final theory of sales, namely, the theory of freedom of sales. 
He founded the second school, because he gave a strong 
preference to material commodities over other forms of 
value, and even to agriculture over other forms of produc- 
tion, while he well refuted the point of Quesnay, that the 
physical earth is the only source of values. He also gave 
a false preference to the home trade over the foreign trade, 
to labor as a cause of value over desire as the other cause, 
and even to certain forms of salable effort over other forms 
equally salable. Still, several of the more important propo- 
sitions of our science are established in this hook beyond the 
reach of controversy, and they have exerted a prodigious 
influence over the legislation of Great Britain and of many 
other countries also. He demonstrated that both the parties 
are gainers in commerce. He exalted labor, and showed 
the immense advantages of its division. lie advocated with 
all his misrht the unshackled freedom of labor and trade, 



6Q POLITICAL ECONOMY. 

and mercilessly exposed the weak points of the devices of 
the mercantile system. 

On the other hand, a strange lack of precise definitions, 
a want of consistency in the use of terms, and consequently 
an absence of scientific generalizations, mar the "Wealth 
of Nations," and have given rise to endless controversies. 
For example, Dr. Smith does not anywhere tell us in what 
" wealth" consists. He does not attempt to give a defini- 
tion of that word, which is with him the bottom word. From 
the frequency, however, with which he uses the phrase, " the 
annual produce of land and labor," we may infer that that 
was in general his idea of "wealth." If so, his idea was 
very faulty ; for he himself classes ' ' labor ' ' among the 
valuable things ; but labor is no part of ' ' the annual prod- 
uce of land and labor." He counts as a part of fixed capital 
' ' the acquired and useful abilities of all the inhabitants or 
members of the society; " but "abilities," certainly so far 
as they are natural, are no" part of " the annual produce of 
land and labor." He rightly reckons as a part of circulat- 
ing capital ' ' bank-notes and bills of exchange ; ' ' but clearly 
enough, these are not "the produce of land and labor." 
Many things are bought and sold every day which are not 
" the produce of land and labor," either as separate or com- 
bined ; and many things which are ' ' the produce of land and 
labor," whether separate or combined, cannot be sold at all 
at certain times and places. Therefore, Dr. Smith's idea 
of "wealth" was at once quite too narrow and quite too 
wide. But it is well to note that he too held with those of 
old that there are at least three kinds of valuable things. 
At last he comes in a remarkable passage to the root of the 
whole matter. He says : "A guinea (which may be called 
the produce of land and labor) may be considered as a bill 
for a certain quantity of necessaries and conveniences upon 
all the tradesmen in the neighborhood. The revenue of the 
person to whom it is paid does not so properly consist in the 
piece of gold, as in what he can get for it, or in what he can 



HISTORY OF THE SCIENCE. 67 

exchange for it. If it could be exchanged for nothing, it would, 
like a bill upon a bankrupt, be of no more value than the 
moat list -less piece of paper." This is just the truth. Here 
Dr. Smith admits iu ample terms that even a gold guinea, 
and hence all kinds of valuable things, depends for its "value 
on its exchangeability. If he had organized his matter around 
this point as a centre, instead of around " the annual prod- 
uce of land and labor; " if he had widened his discussions 
so as to include all exchangeable things as such, instead of 
narrowing them to what is " tixed and realized in some ven- 
dible commodity;" and if he had given his mind more to 
definitions and thus to generalizations ; his book would never 
have become, as it has already become, antiquated ; for he 
had the art of making his discussions interesting, even when 
his conclusions were clearly wrong ; of bringing the truths 
discovered by others and those first demonstrated by himself 
into a sort of system, some parts of which indeed are not 
consistent with other parts, — as when, for example, he 
allows that a state may regulate the rate of interest, and 
that some wines bear a high price because they are scarce 
and fashionable ; and of making the facts of history throw 
a blaze of light upon the points he had in hand. 

Dr. Smith's book was translated into French in 1781, and 
soon threw into the shade not only Condillac's book on 
"Commerce" but also more or less the writings of the 
physiocrats and of the earlier French economists. It made 
such an impression in France in connection with the impres- 
sion already produced by Boisguillebert and the rest, that 
William Pitt, who, as a Cambridge undergraduate, bad jual 
before studied the treatise of Smith, had little difficulty in 
1786 iu concluding with the French Government a treaty of 
commerce and navigation, by which was established on the 
payment of moderate duties " reciprocal and entirely perfect 
liberty of navigation and commerce between the subjects of 
each party in all and every the kingdoms, states, provinces 
and territories, subject to their majesties in Europe for all 



68 POLITICAL ECONOMY. 

and singular kind of goods in these places." This excellent 
treaty was shortly after swept away by the oncoming of the 
French Revolution. If books are to be measured by the 
effect that follows them on the fortunes of mankind, then 
Dr. Smith's must be reckoned among the greatest of books. 
It was translated into several of the languages of the Conti- 
nent, and came to have a crowd of followers in all the coun- 
tries of the west of Europe. Of course that crowd has been 
•;he greatest in Great Britain. For a century there has been 
no end of the flow of writings that may fairly be said to be- 
long to his school. These writers in long succession, many 
of them of great reputation, whose special points will be 
named and discussed in the sequel, have for the most part 
followed out his principles and accepted his limitations, — 
like him, confining their discussions of value mainly to ma- 
terial commodities, regarding labor rather than desire as the 
cause of value, ignoring personal services as such, and giv- 
ing with some exceptions but little attention to the sub j eel 
of credit. Of course in such thorough and continued discus- 
sions they have corrected many of Adam Smith's minor mis- 
takes, and have made important additional contributions to 
the science at many points. They have also the great repu- 
tation that attends undoubted success : they have put the 
doctrines of Free Trade and Sound Money upon an im- 
movable basis in Great Britain, and thus exerted a powerful 
influence towards their establishment throughout the world. 

Nevertheless the signs are now seen on every hand that 
the second school of Political Economy, as a scientific sys- 
tem, is nearing its end. It is already passing to join the 
first school, its worthy predecessor, in the land of Silence ; 
and the third school, which started the same year, may per- 
haps already be said to be the system of the Present, and at 
any rate is certain to become the system of the Future. 
Three indications of the decay of the second school may 
suffice the present purpose. (1). Bonamy Price, long distin- 
guished both in other ways and as the Professor of Political 



UISTOIiY OF THE SCIENCE. 69 

Economy in the University of Oxford, a disciple of Adam 
Smith, and as much entitled perhaps as any man in the 
world to speak for the school, published a book iu 1878, 
dedicated by permission to His Royal Highness, Prince Leo- 
pold, with the title ''Practical Political Economy." Ths 
subject of the first chapter of this book is, "Is Political 
Economy a science?" and the answer extended through 
thirty pages is an emphatic No. The title is in itself a 
confession, and the reason given for the title is an express 
confession. " The v:ord Practical is added solely in contra- 
distinction to tchat man be catted Scientific Political Economy. 
It is intended to indicate a mode of treatment which not only 
does not claim to be scientific, but which supposes the scientific 
method to be a mistake." Moreover, Prof. Price does not 
indicate his own feeling alone in this remarkable chapter, 
but goes on to say of the meeting of the Political Economy 
Club of London in 1876 to celebrate the centenary of Adam 
Smith's book, — " It is unhappily but too clear that a marked 
feeling of dissatisfaction icith the actual position of Political 
Economy pervaded the whole gathering." The chief ground 
of this scientific despair of the second school, as the present 
writer pointed out many years ago, is their vain attempt to 
use the word " wealth " in a technical sense. That is a word 
impossible to be defined with precision. From its indefinite- 
ness and the variety of associations it carries along with it 
in different minds, it is totally unfit for any scientific pur- 
pose whatever. No two writers conceive of it alike. In his 
first sentence Adam Smith seems to explain it as " the neces- 
saries and conveniences of life which a nation annually con- 
sumes." That is pretty vague, to say the least of it. 
"What is wealth?" asks Bonamy Price, and he answers 
cautiously, — " Here again we have a question as hard and 
as puzzling as ever." But while the school as a whole has 
tended towards a concrete meaning of the word, as denoting 
something fixed and realized in a vendible commodity, Price 
goes on to say, — " I hold that the qualities of a people, their 



70 POLITICAL ECONOMY. 

moral, intellectual and physical natures, are parts of theit 
ivealth." The truth is, each disciple of the second school 
has had his full say about the word : no two of them have 
agreed about its meaning : if possible, each has been more 
befogged by it than his predecessor : it has been demon- 
strated that there is no need of the word at all in the 
science ; but the school will not give it up ; and, therefore, 
they are dying of a pet but inadequate word, which they 
insist on putting in at the foundation of their work. Prof. 
Price admits in so many words, — "we must give up all 
hope of a scientific definition of wealth." Yes, indeed ; and 
they must therefore ' ' give up all hope ' ' of holding the 
ground of Political Economy against those who know how 
to use words with precision. 

(2) . Mr. Cliffe Leslie, a very intelligent and copious and 
candid economical writer of the Commodities School, in an 
article of the Fortnightly Review for October, 1880, betrayed 
his infidelity in the scientific conclusions of Political Economy 
both in other ways and also by these significant questions at 
the end : — " How much, beneath what can claim only a local 
or a temporary importance, possesses universal and permanent 
value? WJiat problems have been solved for all time? WJiat 
universal truths have been discovered? How much of the 
work of Smith, Malthus, Mill, Roscher, Knies, Bastiat, 
Chevalier, Wayland, Walker, Perry, Carey, will remain 
standing and solid a hundred years hence?" The same 
gentleman more recently mildly ridiculed the present writer 
for these words in the preface of his smaller book : — "I 
have endeavored in this book so to lay the foundations of 
Political Economy in their whole circuit, that they will never 
need to be disturbed afterwards by persons resorting to it 
for their early instruction, however long and however far 
these persons may pursue their studies in this science : " — 
as if such foundations could not be laid, or at least had not 
yet been laid, for the science. Mr. Leslie's words in this 
connection are of importance only as indicating clearly the 



UISTOIiY OF TIIE SCIENCE. 71 

dissatisfaction, or rather despair, of the second school as 
such. 

(3). The same thing is indicated by the shock produced 
in England by the books of Henry Dunning Macleod. Mr. 
Macleod indeed did not come upon the British public un- 
heralded. So early as 1831, Archbishop Whately, then 
Professor of Political Economy at Oxford, criticised the 
fundamental views of the second school, disliked the techni- 
cal use of the word " wealth," and proposed a new name 
for the science — Catallactics — in exact accordance with its 
true nature. " For the things themselves of which the science 
treats, are immediately removed from its province, if we 
remove the jwssibility or the intention of making them the 
subject of exchange; and this, though they may conduce in 
the highest degree to happiness, which is the idtimatc object 
for which icealtli is sought." Thus Whately reached one 
hand back to Condillac, and the other (as it were) forward 
to Bastiat and Macleod. The second school, however, was 
then too strong in England through the labors of Smith and 
Bicardo, and was soon to be too much restrengthened by 
the work of Stuart Mill, for these light blows of the polite 
churchman to have much effect. But Macleod hewed roughly, 
lie was hied a lawyer, and as such and as laud-proprietor 
became interested in economies on the practical side. His 
first economical discoveries were in the realm of Credit, for 
the understanding of which he had the great advantage of 
familiarity with the Roman Law, and also with the practical 
routine of commercial busiuess. lie showed that the buying 
and selling of Credits come just as much within the view oi 
the science as the buying and selling of Commodities ; and 
even maintained to the horror of the concrete school that 
withiu certain limits Credit is capital ; and also was the first 
to demonstrate the important principle, that a difference in 
the rate of discount between any two places, more than suffi- 
cient to pay the cost of sending bullion from <>nc In the other % 
vtiturally causes a transmission of bullion from one to the 



72 POLITICAL ECONOMY. 

other ; and, accordingly, a sedulous attention to the rates of 
discount should be the managing principle of banks of issue. 
Macleod, accordingly, appeared as a strong champion of the 
third school. He held that all three kinds of sales come 
equally beneath Political Economy. In 1872 he wrote to 
Chevalier, the personal friend of Bastiat, in warm allusion 
to the latter: — " No one can feel more sensibly than I do 
how inferior I am to your lamented friend in literary sic ill, 
but our ideas are the same; and I venture to say with confi- 
dence, that had he been living now, there would have been no 
material difference between us at any point." First in his 
"Theory and Practice of Banking," since republished in 
different forms ; then in 1858 in his " Elements of Political 
Economy," afterwards expanded into his "Principles of 
Economical Philosophy ; ' ' and lastly in his exhaustive 
"Dictionary of Political Economy," Macleod showed him- 
self to be learned, lawyer-like, copious, original, over-confi- 
dent, sometimes careless, controversial, exasperating, almost 
belligerent, and always indefatigable. Good economists of 
the earlier faith, like Cairnes, Price, and Leslie, found it 
hard to possess their souls in patience. Half-conscious that 
their own position was narrow and untenable, half -persuaded 
against their will that the science was moving into a broader 
and better field, and thoroughly disliking the sledge-hammer 
and devil-may-care manner of their Scotch compeer, there 
was something ludicrous to bystanders in the attitude of the 
older brethren towards Macleod. Still, though his views 
found a readier acceptance in France and in the United 
States than at home, his books have already changed, and 
cannot fail in the end greatly to change, the economic opin- 
ions of his countiymen. His definition of the science is the 
same as that of all the other leaders of the All Sales School, 
namely, the Science of Exchanges. 1 

1 Broderick's English Land and English Landholders, pp. 3, 11, ot seq. ; Green's 
England, I. 363, 410; McCulloch's Com. Diet., Arts. Wool and Cotton; Green's Short 
Hist., p. 386 et seq. ; Locke on Civil Gov., sects. 39-43; Henri Martin's Dec. Mon., 
II. 147 ; McCulloch's Discourse in his ed. Adam Smith ; Columella, Be Re Bustica, 



UISTOliY OF TIIE SCIENCE. 73 

7. Italy was the land whence the light of the new learn- 
ing of the 16th century spread over Europe. Banks, ox 
public loans, on which interest was paid and wlio.se shares 
were negotiable, had been very early established at Venice, 
Milan, and Genoa ; and this circumstance with others natu- 
rally directed the chief attention of the Italian economists 
to the subject of Money. In 1552, Scarufli published a book 
On Moneys and the true proportion between Gold and Silver. 
In 1G13, Serra issued his Treatise on the causes which make 
Gold and Silver abound in Kingdoms. Davanzati wrote : — 
" Gold and silver are instruments which make the property 
of mortals circulate over the whole globe, and which may be 
considered as secondary causes of a happy life." Mengotti 
wrote : — "Money is essentially rebellious to the orders of law : 
it comes without being called, it goes without being arrested, 
deaf to advances, insensible to threats, attracted solely by the 
allurements of profits." Numerous writers besides these 
through original discussions came to the sound conclusion 
that governments have no right to tamper .with the standard 
of value used by their subjects ; and some of them expressed 
the strong reaction against the Mercantile System felt in 
Italy, as well as in France and England, during the second 
half of the 18th century. The first professorship of Politi- 
cal Ecouomy was established in the university of Naples in 
1754, on three conditions, namely, that the lectures should 
be in Italian, that Antonio Genovesi should be the first pro- 
fessor, and tnat no ecclesiastic should succeed him. G 
vesi was a mercantilist, but he insisted on the free exportation 
of corn. A second professorship was instituted in Milan in 
1768, and Beccaria, who already felt the influence of Qui 
and insisted on the freedom of inland-industry, was appointed 
to lecture in it. He was the first to call iron the fathi r-metal. 
Later Italian economists belonged in general to the second 
school. The two most remarkable things about the Italians 

lib. i.; ( !airnee'g Pol. Bcon., Appendix A ; ICaeleod'a Elements of Pol.Kcon., Preface, 
and Maclcod's 1'rin. Bcooom. Phil., Dedicatory letter to chevalier. 



74 POLITICAL ECONOMY. 

in this connection are (1) their precedence in founding chairs 
for teaching the science, and (2) their zeal in collecting and 
classifying the books on the science. A collection of the 
best Italian writers was begun under the patronage of Napo- 
leon in 1803, and completed in fifty octavo volumes in 18 10. 
A second collection in twenty-six octavo volumes was made 
by Professor Ferrara of Turin in 1850-70. A third collec- 
tion, to consist in part of foreign works translated into 
Italian, was commenced in Turin by Professor Boccardo in 
1875. Professor Cossa of the university of Pavia published 
in English in 1880, as previously in Italian, a Guide to the 
Study of Political Economy. He issued also about the 
same time in Italian other treatises of merit on the general 
subject. 1 

8. Perhaps the Germans have done more for Political 
Economy through their public action in the Zollverein, and 
through the Society of German Economists, than through 
the individual contributions Of their numerous economical 
writers. Prussia, founded the Zollverein in 1818. As a 
separate state of Germany, Prussia deserved well of the 
world for successful efforts to improve and diffuse education, 
and for equally successful efforts to bring into Germany as 
a whole a free commercial system. The outline of the Zoll- 
verein was uniform customs duties on the frontier, a division 
of this revenue among the states on the basis of the popula- 
tion of each, and a perfect internal free trade. The Ger- 
man States came into the plan one after another, suppressed 
their interior custom-houses, adopted the Prussian proposal 
of a maximum duty of 10% ad valorem on foreign manufac- 
tures of which nothing was prohibited, varied the rate of 
duties below that figure from time to time, after 1851 ad- 
mitted the raw materials of manufactures free or nearly so, 
found that each of them without exception had a larger reve- 

1 L. C'ossa's Pritni Elementi di Economia Politica, and autograph letter from the 
tame; Blanqui's Hist. Pol. Econ., pp. 260, 2G6, 523; Appletons'Cyclo., Art. Political 
Economy; and Chambers' Cyclo., Art. Genovesi. 



HISTORY OF THE SCIENCE. 75 

nue than before joining the Zollverein, witnessed an immense 
progress of trade and industry in all Germany under this 
an-angement, and thus became gradually prepared through 
the benefits of this commercial union for that more intimate; 
political union under the new empire which was consum- 
mated in 1871. The empire is a union of separate States, 
like our own government ; and all commercial affairs, tariffs, 
and taxes, are now managed by the Bundesrath, or imperial 
senate, in which all the States are represented by annual 
election, and over which presides the imperial chancellor 
ex officio. The principles of the Zollverein .were not much 
changed by the change in the form of government. A few 
simple classes of foreign articles, on which duty is charged ; 
a low scale of duties on each, almost wholly specific rather 
than ad valorem, — mostly by weight ; no internal barriers at 
all ; very few, if any, duties on exports ; a rising customs 
revenue distributed among the States ; a yearly chance of 
changing the rates of impost, and hence of experiment and 
of reaction ; a new coinage of gold, and a new metrical sys- 
tem, for the whole of Germany ; the trial of an universal 
income-tax ; and some new political combinations within the 
empire on the ground of supposed commercial exigencies ; — 
were the main features during 1871-81 of this customs and 
commercial union embracing nearly 45,000,000 of people. 
It seldom falls to the lot of an individual thinker to teach 
such impressive lessons as may be learned from these great 
movements. A similar system united in 1851 the different 
provinces of the Austrian Empire, and similarly gratifying 
results followed unity and simplicity in trade regulations. 

The Congress of German Political Economists, which tir>t 
met in 1858, and whose meetings have been annual since in 
one of the chief cities of the empire, though entirely non- 
political, has contributed greatly to the liberal imperial legis- 
lation, such as the abolition of the usury laws, of the old 
laws binding certain men to the soil, and of the remnants <>f 
the old guilds and other mediaeval rules. The chance of 



76 POLITICAL ECONOMY. 

a new political combination turned Bismarck towards com- 
mercial restrictions in 1880, which lessened the direct influ- 
ence of this Society, a majority of whose members are 
decided free-traders, but their indirect weight in moulding 
public opinion and in shaping economical and social legisla- 
tion is said to be great. To reach the end now in view there 
is no need of mentioning many of the German authors. 
Friederich List, an early champion of the Zollverein, some 
time also a resident of the United States, wrote largely both 
in English and German in the second quarter of the 19th 
century, using especially the periodical press as a means of 
influence. Though a mercantilist in his writings, he dis- 
played a multifarious activity on both continents in behalf 
of many liberal schemes till his suicide in 1846. K. H. Rau 
of Heidelberg was author of a text-book much used in Ger- 
many for about thirty years, and was for about the same 
time a forcible lecturer in one of the large auditoriums of the 
university. Lorenz Stein of Kiel and Vienna, perhaps the 
first to examine historically and scientifically the socialist 
movement in France and elsewhere, was a copious writer 
on legal and economical subjects in 1841-75, a stickler for 
the rights of private property as against all the vagaries of 
communism, and a zealous free-trader as against all legalized 
barriers to exchange. Socialism is first and last hostility to 
the acquisition or exclusive use of Capital by any person or 
association under the control of the state. Quite a number 
of the professors in the German universities who lecture on 
political economy have given to a certain degree the hand of 
fellowship to socialism. These have passed under the name 
of Katheder-Socialisten, or socialists in professors' chairs, 
in distinction from the workingmen who have been the soul 
of the movement. " This scientific socialism," says Mehriug, 
" distinguishes itself by an uncommon number of interesting 
characters ; but this advantage has a reverse side in an entire 
want of agreement both as to their criticism of the present or* 
der of society and as to their positive demands. Tliey have 



HISTORY OF THE SCIENCE. 77 

not made any lasting impression on the worJiingmen'u move' 
matt. But it is scientific socialism which to-day Jills all 
patriotic hearts with anxiety." 

Johann Conrad of Halle has sometimes been named as 
among these socialists of the chair; but, at any rate, he lias 
been a clear writer, an influential thinker, an admirable 
lecturer, and an unwearied statistician. Wilhelm Roscher 
of Leipsic was the most widely known economist of Ger- 
many in the third quarter of the 19th century. His great 
work, System der Volksicirthshaft, is in four separate parts, 
of which the first has been translated into English in two 
large volumes under the title, Principles of Political Econ- 
omy. The German title is, Die Grundlagen der National- 
'bconomie. The second part contains the economy of 
agriculture and related subjects, — National'uconomie des 
Ackerbaues. The third part discusses manufacturing indus- 
try aud commerce, and the fourth the Economy of the State 
and the commune (Gemeindehaushalt) . These books, as 
well as his History of Political Economy in Germany, are 
exceedingly learned, and are full of statements of fact 
gathered from every land. This peculiarity has given rise 
to a claim put forth in Roscher's behalf both by his French 
and English translator, that he is the founder and leader 
of a new school in political economy 7 , namely, the historical 
school. This expression is much calculated to mislead. 
Roscher indeed uses history a great deal for induction and 
illustration, and so, for that matter, does Adam Smith, and 
many more. Roscher is not peculiar in this, except, it may 
be, in the extent to which he carries it. A wide knowledge 
of the facts of exchange in all parts of the world is very 
useful to the scientific economist, but he must have a 
deal more furniture than that, if he wish to extend his 
science. Roscher does not seem to be particularly skilled 
in generalizations, which are the svbstcmoe of Bcience, and 
he certainly develops his matter on a scheme famished by 
others rather than on one devised l>v himself. He belongs 



78 POLITICAL ECONOMY. 

emphatically to the second school of our science, the one 
founded by Adam Smith. The subject of the first book of 
his Grundlagen is Production, of the second book Circula- 
tion, of the third Distribution, of the fourth Consumption, 
and of the fifth Population ; terms, some of which indeed go 
back to the first school of Quesnay, but which as so used are 
pretty definite ear-marks of the second school. In general, 
the economists of Germany have unfolded the science in 
too intimate a dependence on the state, — considering it too 
much in its relations to public law and administration, and 
too little in its own proper claims and authority. 1 

9. The United States of America, in colonial vassalage 
and as an independent nation, have furnished from the first 
conditions favorable to the cultivation of economic studies. 
The Mother Country early envied these Colonies their grow- 
ing trade and their natural manufactures. The navigation 
acts of 1651-63 grievously restricted their foreign markets 
and their ocean shipping. In 1672, the chief products of 
the Colonies, under the style of " enumerated articles," were 
forbidden to be carried except through heavy duties even 
from one colony to another. In 1698, colonial woollens, 
whose manufacture had sprung vigorously up of its own 
accord, were prohibited to be sold by one colony to another. 
Parliament prohibited to the colonists the exportation of 
hats in 1732, and the erection of mills for slitting and roll- 
ing iron, and of furnaces for making steel, in 1750. The 
first general Congress of the Colonies in October, 1765, 
resolved " xi. That the restrictions imposed by several late 
acts of Parliament on the trade of these colonies will render 
them unable to purchase the manufactures of Great Britain." 
The Revolution itself was a well thought-out movement of 
resistance to parliamentary laws restricting the rights and 
the gains of trade. The Constitution of the United States, 

1 Woolsey's Communism and Socialism, pp. 4-14, 192; "Woolsey's Political 
Science, i., pp. 313, 314; Roscher's Principles of Political Economy, passim; Blan- 
qui's Hist. Pol. Econ., Eng. trans., p. 531; Articles Rau, Roscher, Stein, etc., in the 
Cyclopaedias. I have myself heard Rau lecture in Heidelberg, and Conrad in Halle. 



HISTORY OF THE SCIENCE. 79 

while it gives to the Federal Congress the power • ' to regu- 
late commerce," expressly forbids all taxes on exports, ami 
all inter-state impediments to free traffic. Ever since the 
present national government weut into operation in 1789, 
there has been a succession of public questions involving 
economical principles, that have stirred more or less deeply 
the mind of the nation. The coinage laws from the first 
have been experiments as to the relative value of gold and 
silver; since 1819, much interest has attached to the mining 
of these in the western half of the continent ; and in the 
eighth decade of the century, the country was shaken from 
one side of it to the other by the perplexing problem of 
bimetalism. The country has had experience with almost 
every variety of paper money. There have been two great 
Banks of the United States, State banks innumerable under 
all sorts of regulation, and since 18G3 there has been oppor- 
tunity to watch the working of a vast national banking sys- 
tem. The funding and refunding of a great national debt 
(1861-81) opened the mysteries of fiscal operations to the 
minds of the people. Tariff discussions have always been 
in order from 1789 till the present time, and arc certain to 
be continued into the future ; sometimes the masses of the 
people have been deeply interested in these, and the fate of 
political parties has turned on them; but the people as a 
whole have never yet seen, as they will one day see, how 
they have been imposed upon and impoverished by the plau- 
sible tricks of a tariff. 

Under all these circumstances, it would be thought that 
our people would be uncommonly well-trained in economics. 
But it is not so. There never has been a national text-book 
generally accepted, such as the English had for a century in 
the work of Adam Smith. Besides, our people have never 
been driven by the pressure of want, or by medheval burdens 
of any kind, to study this science. Politically privileged 
classes have been mostly unknown in the United States. 
Wars have been infrequent, and standing armies never 



80 POLITICAL ECONOMY. 

allowed to suck up the substance of the people. An abun 
dance of cheap and fertile land has been a constant resource 
to persons anywhere crowded by competition, or in any way 
feeling uncomfortably the pressure of numbers. A virgin 
continent at their free disposal, and the buoyancy of youth 
in their hearts, our people have been led to study very little 
their limitations, and perhaps least of all their economic limi- 
tations. The enormous losses of their commercial crises, 
and of their protective tariffs, make far less impression on 
them than they would make on people less fortunately 
placed . 

Then, too, a knowledge of economic science has scarcely 
ever been a requisite for places of honor and profit, — not 
even for the highest fiscal positions. There has been almost 
no demand for this kind of knowledge. Of the secretaries 
of the national treasury even, only Hamilton, Gallatin, 
"Walker, McCulloch, and Sherman, could lay any claim at 
all to a scientific mastery of this subject. In the entire list 
of the Presidents of the United States, Mr. Garfield is the 
only one, who had to any considerable breadth and depth a 
personal control of this science. Only a few members of 
either branch of Congress from the beginning on have been . 
economists in the scientific sense ; what is worse, these have 
been regarded as scarcely better qualified for their place on 
that account ; and, consequently, it cannot be said that the 
usual action of Congress has been guided by much economic 
wisdom. The fiscal and commercial laws have often been 
most complicated and conflicting. Now and then a govern- 
ment official has distinguished himself for ability in special 
parts of the subject : for instance, Mr. Wells, as Special 
Commissioner of the Revenue, and since as a private gentle- 
man, presented such facts and reasonings in relation to the 
national industry, commerce, and money, as deserved and 
received the profound attention of the people ; Professor 
Walker, as the Superintendent of the two censuses of 1870 
and 1880, furnished a thesaurus, whose collection was guided 



HISTORY OF THE SCIENCE. 81 

by the economic instinct, and whose facts are extremely use- 
ful for economic illustration ; Dr. Lindermau, as Director of 
the Mints, showed himself to be a master in all matters per- 
taining to bullion and coins ; and Mr. E. B. Elliot, as a 
mathematician and statistician of the Treasury, gained a 
uame in many lauds for his science and skill. 

The formal treatises on Political Economy in this country, 
of which the first was written by Daniel Raymond, 1820, 
fall mostly into two groups, namely, first, those modelled 
mainly upon the plan of Adam Smith ; and second, those 
modelled mainly after the ideas of Henry C. Carey. Into 
the first group come easily the books of Raymond, Rae, 
Way land, Bowen, Bascom, Amasa Walker, Chapin, Sturte- 
vant, and Professor Walker. These all belong to the second 
school. They all conceive of Political Economy as a science 
of "things," rather than as a science of persons. They all 
arrange their matter for the most part under " Production," 
" Distribution," " Exchange," and " Consumption." They 
all try to use technically the concrete word "wealth." 
They all seem to the present writer to miss the true doctrine 
of Credit. Yet they all, some more and some less, furnish 
fresh contributions to the science both in the way of infor- 
mation and of scientific distinctions. Of John Rae, 1834, 
John Stuart Mill says : "In no other book known to me is so 
much light thrown, both from principles and history, on the 
causes which determine the accumulation of capital." Amasa 
"Walker's book presents much original discussion on the BUD- 
ject of Money, and has been translated into Italian for the 
collection of Boccardo, already referred to. His son, Pro- 
fessor Walker, in full monographs on "Wages" and 
" Mone} T ," and in his formal treatise, " Political Economy," 
(1883), whose superstructure is worthier than its founda- 
tions, at once honored the name of his father, and gained an 
enduring place in the science for himself. 

The other group must be noticed the more carefully, b< < 
Carey claims as original with himself some of the fundamental 



82 POLITICAL ECONOMY. 

positions of Bastiat. The dispute is not very important, 
because the growth of science is continuous, and because it 
is difficult for any reader and thinker sharply to cut off in 
tbe work of his mind what is his own from that of others. 
It is certain that these positions are common to the two 
writers ; and it is to be presumed that Bastiat profited by 
some of the views of Carey, wbose first book dates from 
1835; but there is more than enough that is distinctive in 
the two authors to justify the claim of each to originality 
and merit, and also to preclude the classing of Carey and 
his followers in the third great school of economists. In 
some respects they belong to that school, and they certainly 
do not belong to the second school ; but in other, and espe- 
cially in practical, respects, they are a knot by themselves, 
— they are a group and not a school. Certain peculiarities 
of Carey himself cling to all his followers, and these are 
such as make it almost certain that the group will never 
become a school. 

Carey's father was an Irish exile, and one of the founders 
of the Hibernian Society in Philadelphia in 1793, the year 
of his son's birth. He was a constant writer on party poli- 
tics, political economy, and social questions. The main 
thought in a series of Essays published by him in 1822 was 
the excellent one, which also runs through the writings of 
his son, namely, that " there is a complete identity of interest 
between agriculture, manufactures, and commerce." But he 
hated England with all the fervor of a Celt. The biogra- 
pher of the son, Dr. William Elder, and one of his zealous 
followers, admits that his passionate hostilit} 7 to the British 
system of foreign trade and the connected system of political 
economy, took something of the temper and tone of national 
prejudice, adding, " His father was an Irish patriot and a 
political exile from the land of his birth. Something heredi- 
tary may be detected running with much of the pristine force 
of blood through the life and character of his son." Dr. 
Elder also says: " He sometimes clinched his deliverances 



HISTORY OF THE SCIEXCE. 83 

with expletives and epithets something out of fasiion in 
society." An English visitor said of him: "He is a man 
of plain speech, and swears like a bargeman whenever Mill's 
name is matt toned." Now, a temperament and a prejudice 
like tl is is hardly favorable to processes of logical reasoning. 
As a matter of faet, Carey was not a clear and cool economic 
reasoner. He had insight — a plenty of it — and made sev- 
eral important and permanent contributions to our science, 
but his system as a whole is not logically coherent. It does 
not hang well together. His protectionism, for example, 
is no outgrowth of the rest of the system, but is rather in 
direct contradiction to it. He was a protectionist appar- 
ently, partly because he hated England and its policy, and 
partly because he was of Pennsylvania, whose iron and coal 
are raised in price by protective duties, and in which state 
have resided most of his supporters. These are Stephen 
Colwell, Peshine Smith, "William Elder, Ellis Thompson, 
William Kelley, Horace Greeley, and others. 

The group are not wholly at one as between themselves, 
but in general they all follow out the points of their leader. 
They all exalt the individual nation as over against the 
world, as if it could have an independent development and 
destiny separate from the world, and would be glad to have 
their system entitled the " national " or " nationalist " 
Economy. They all emphasize governments as a large and 
constant factor in the ongoings of trade, and are not willing 
to leave to natural motives and to natural forces what these 
are perfectly able to care for and conserve. Thtj are all 
protectionists, just as if tricks wrought on certain prices 
could by any possibility enrich a whole people. They all 
keep a closer eye to the interests of selected capitalists than 
to those of general laborers. They are all friendly to paper 
money and a good deal of it, and some of them have no 
objection to irredeemable paper money. Most of them try 
to draw a distinction between economy as a science and 
economy as an art. All of them show a reluctance to look 



84 POLITICAL ECONOMY. 

into the inmost nature of trade, to begin at the beginning, to 
analyze simple instances, to display the motives and gains 
of exchanges, and then to go on clearly and logically through 
the deeper portions of the subject. This lack of consistent 
logic makes the group weak with reasoning and reasonable 
men, notwithstanding the good service done to our science 
by some of them. Among the central points of Carey and 
his followers may be enumerated these : That land gains its 
value from labor ; that, generally, poorer soils are first culti- 
vated, then those more fertile and difficult ; that, what would 
be the cost of their reproduction rather than their actual cost 
of production, determines the value of commodities ; that 
the interests of classes and individuals are really harmonious ; 
that there is a tendency to increase in the wages of labor, and 
to diminution in the rate, though increase in the aggregate, 
of the profits of capital ; that the advancement of society 
corresponds to the degrees of association and liberty in it ; 
and that the prices of land, labor, and raw materials tend 
to approach the prices of finished commodities. 

What may perhaps properly be called the Katheder- 
Oecoiwmisten, or Economists of the Chair, have been prom- 
inent in the United States. The colleges were late in 
instituting these chairs, few of them being earlier than the 
middle of the century, but since that time their occupants 
have exerted a large influence on the educated young men 
of the country directly by their teachings and on all classes 
indirectly by their writings. Among the more prominent of 
these teachers have been Sumner at New Haven, who had 
the advantage of entering on the thorough tillage of a field 
already well ploughed by Woolsey, and who in his books on 
" Currency " and "Protection" and in strong articles in 
various periodicals supplemented a powerful influence ex- 
erted orally upon his immediate students ; Diman at Provi- 
dence, who had a worthy predecessor in Wayland, and who 
added force to sound economic teaching by a great beauty 
of personal character ; Dunbar at Cambridge, who had Boweh 



HISTORY OF THE SCIENCE. 85 

before him as no mean economist, and whose own work is 
not to be disparaged because he was inclined to disparage 
the work of his colaborers ; Chapin at Beloit, who taught 
enthusiastic classes in college, and who edited and revised 
Wayland and afterwards wrote a book of his own ; Sturte 
vant at Jacksonville, who in his book indeed wrestled in vain 
with the irreducible word " wealth " while presenting to his 
readers, and doubtless also to his pupils, a mass of economic 
troth in a popular way ; Canfield at Lawrence, whose effec- 
tive work in economics is all the more to be noticed, because 
the bulk of his instruction was given along another line ; and 
Thompson at Philadelphia, who in a widely circulated treatise 
and in oral instruction tried hard to round down to a circle 
some of the worst tangents of Carey. The result of all this 
painstaking instruction has been a generation of compara- 
tively young men much better versed than their fathers in 
the principles of our science. 

The only American books that belong unequivocally to the 
third school of Political Economy are the two books, of which 
the one now in hand dates from 1865, of the present writer. 
The great honor was given to him to associate his name with 
Condillac, "Whately, Bastiat, and Chevalier, the heads of this 
school, by Macleod, its most distinguished representative 
in Great Britain, in the first volume of his " Principles of 
Economical Philosophy" issued iu 1872. Macleod's own 
name at any rate is sure to stand in that list in all time to 
come. His "Elements of Economics," published in 1881, 
restated with exhaustive learning and ability the grounds on 
which the third school build, and in which they have sneh 
confidence as to believe that there never will be another school 
substantially different from their own. We have called this 
the All Sales School in distinction from the Agricultural 
School of Quesnay and the Commodities School of Adam 
Smith. 

A brief reference to Henry George, whose " Progress and 
Poverty" made a great noise in the years 1880-81, will con- 



86 POLITICAL ECONOMY. 

elude the seetion and the chapter. It is impossible not to 
admire the earnestness and personal conviction of this Cali- 
fornia writer. In the preface to the fourth edition he 
says : " But there has been nothing in the criticisms they have 
received to induce the change or modification of these views. 
I71 fact, I have yet to see an objection not answered in advance 
in the book itself." If he were a few years before, as is 
implied on page 283, an artisan working at his trade, it 
is difficult not also to admire the learning, the literary 
skill, and the dialectic push, displayed in this book. Never- 
theless it starts from wrong data, and proceeds to an utterly 
false conclusion. The author, like so many others before 
him, is helplessly entangled in the word "wealth," and 
completely mistakes the nature of land as a valuable thing, 
not drawing the essential distinction between land as a 
physical gift from the hand of God and land as made and 
kept valuable b}' the efforts of men. Consequently he thinks 
that the private ownership of land is a misappropriation of 
the gifts of God. iC Ifwe are all here by the equal permis- 
sion of the Creator, we are all here with an equal title to the 
enjoyment of his bounty — ivith an equal right to the use of 
all that nature so impartially offers. This is a right that is 
natural and inalienable ; it is a right that vests in every human 
being as he enters the world, and which during his continu- 
ance in the world can be limited only by the equal rights of 
others. There is in nature no such thing as a fee simple in 
land. There is on earth no power which can rightfully make 
a grant of exclusive ownership in land." (p. 804.) Accord- 
ingly he finds the cause of Poverty, and of commercial 
depressions also, in the rent of land. He thinks that 
industrial Progress would be promoted if the state would 
appropriate to itself for the benefit of all in the way of 
taxation all landed rents. But is not rent a return for a 
service rendered ? And if the rent be confiscated would the 
service continue to be rendered? It follows from his prem- 
ises, that, as rents increase, wages of labor and interest o/ 



HISTORY OF THE SCIENCE. 87 

capital must fall; or, as he puts it, "As rent arises, interest 
will fall as wages fall." (p. 183.) Bat well-known facts dis- 
prove this. Kent, wages, and interest sometimes rise or full 
together. All three have been higher in England than they 
were 130 years ago during the last 30 years. In spite of 
these radical errors which mar and cut the main drift of his 
book, it is a pleasure iudeed to find him as radically opposed 
to other and current economic errors. He speaks (p. 270) 
of " the robbery involved in the protective tariff of the United 
States, which for every twenty-Jive cents it puts into the treas- 
ury takes a dollar, and it may be four orfice, out of the pocket 
of the consumer." He is equally opposed to the current 
notions, "that there is a necessary conflict between capital 
and labor, that machinery is an evil, that competition must 
be restrained and interest abolished, that wealth may be cre- 
ated by the issue of money, and that it is the duty of Govern- 
ment to furnish capital or to furnish work." 

Let us now put into a summary the main points of the 
chapter. 

1. Every science grows slowly, and a brief study of the 
steps of this growth paves the way for scientific analysis and 
discussion. 

2. The earliest oriental civilization furnished the weights and 
measures and moneys for the early commerce of the nations. 

3. The Greeks first, and of the Greeks Aristotle most, laid 
the foundations of Political Economy. 

4. The Roman Law is a mine of distinctions, definitions, 
and even discussions relating to our subject. 

5. TJie Middle Age teas a jumble of men and measures, 
some for and some against the rights and gains of a broad 
traffic. 

6. The wonderworkings of capital were first shown to the 
world on a grand scale by the Jews. 

7. The Hanseatic League, the English and Italian town, 
and the thrift of Charlemagne, greatly developed commerce. 

8. The fill of Constantinople drove to the West arts and 
artisans and abiding riches. 



88 POLITICAL ECONOMY. 

9. Four great Tlieories of Sales and Three great Schools oj 
Economy have followed each other. 

10. France stands first of modern nations in an economic 
vieiv, partly because two of these Theories and two of these 
Schools are French. 

11. British economists have been distinguished within the 
limits of the second School. 

12. In substance of doctrine, though not perhaps in scieri' 
tific form, the third seems likely to be the School of the Future. 



FIELD OF THE SCIENCE. 89 



CHAPTER II. 

FIELD OF THE SCIENCE. 

The foregoing chapter has taught indirectly but effectively 
what is in a general way the subject-matter of our science, 
and also what have been the main currents of human thought 
about it. This is a great gain at the outset, and justifies 
an historical chapter at the beginning, which one might 
think would be more logically placed at the close. The 
next step is to determine exactly what this subject-matter is. 
Thus far we have spoken loosely of our "science," without 
strictly defining that important term. It is time now to in- 
quire, first, what a "science" is, and second, what is the 
precise field of Political Economy among the sciences. 

A Science is the body of exact definitions and sound prin- 
ciples educed from and applied to a single class of facts or 
phenomena. 

In this general definition of a science, in which, as cover- 
ing all the cases and including all that is essential, a full 
trust may be put, the word " body " is used in its pregnant 
sense as implying an organic arrangement of parts. A jum- 
ble of even true definitions and principles does not make 
a science, but only these when placed in a just order and 
dependence. As in the human body all the parts are recip- 
rocally moans and ends, so in a science all the definitions 
and principles and illustrations must be so arranged as to 
make up a symmetrical whole. 

It will be noticed also, that this definition applies to any 
science in all stages of its growth. No science is wt 
completed; but just so soon as any correct definitions and 



90 POLITICAL ECONOMY. 

principles are drawn from and applied to any class of things, 
and tlrese definitions and principles are orderly arranged 
in a body, there is an incipient science ; and its progress 
towards perfection will proceed in precisely the same manner 
in which its foundations have been laid ; new definitions and 
principles will gradually be discovered, and these when 
applied to the class of things from which they have sprung 
will lead to corrections and readjustments and enlargements 
of the science ; and no matter how far these processes may 
be carried, the general definition with which we start will 
also be found ample at the end of the journey. 

It follows, that the first grand condition of any science is, 
that there must be a class of facts to begin with ; and this 
class must be perfectly separated, in the mind by the concep- 
tion and in the words by the definition, from all other classes. 
The class as defined must include every thing that has the 
quality for the sake of which the investigation is had. There 
can be no ragged edges. From the very nature of a science 
as a body, and from the mode in which alone it can be built 
up, it cannot tolerate facts that come partially but not 
completely under its fundamental conception. This must 
be widened to take completely in all things and all phe- 
nomena just so far as they possess the quality in hand, or 
narrowed so as to shut wholly out all things and phenomena 
in so far as they do not possess this quality. The concep- 
tion must embrace and the definition constitute a strict class 
of things, that is to say, include all things that really belong 
together for the purposes of the investigation. Thus arith- 
metic, for example, as the science of number, must be 
inclusive of all things whatsoever that can be numbered, 
while the other qualities of those very things may well sub- 
ject them to still other sciences. So ethics, as the science 
of duty, must just cover those feelings and actions that have 
in them the ow#7i£-quality. So economy, if it be the science 
of sates, must consider those things (and only those) that 
are bought and sold : salableness will be the quality consti- 



FIELD OF THE SCIENCE. 01 

tuting the class of things with which the science lb conver- 
sant. It follows from all this, that the terms and conclusions 

of any science are of necessity general and not particular. 

The second grand condition of the building up of any 
science is, that the class of facts to which it relates be open 
to the processes of Induction, Deduction, or both. Philo- 
sophical induction, which is the main instrument in the 
building up of sciences, is the act of inferring that what has 
been observed and established in respect to a sufficient part 
may be safely affirmed and received in respect to the ichole; 
that what has been found to be true in a certain number of 
individuals will be found to be true of the whole species to 
which they belong ; that when a due number of particulara 
have been examined and their peculiarities ascertained, the 
same peculiarities may be predicated of their generals, how- 
ever comprehensive. The process of induction proceeds 
upon the axiom that Nature is consistent with herself. 
Accordingly, when certain things are shown to be uniformly 
true in a considerable number of cases, the mind naturally 
passes over from these cases to a whole class, and frames 
for itself a general rule or principle, which binds all the 
cases into one bundle, and thereafter affirms what is known 
to be true of some to be probably true of all. This is Gen- 
eralization. It has as a basis a confidence in the resem- 
blances and analogies of Nature; and this confidence is 
justified in the issue, when it is found that Nature pre-or- 
dained the sciences by causing grand resemblances t<> run 
through each department of her works including man and 
his works. Lord Bacon was the first to explain fully the 
ground and the mode of philosophical induction, and hence 
it is sometimes called the Baconian method of reasoning. 
Inductions have to be tested, in order to make Bure that they 
are correct aud one way of testing them is by Deduction. 
which will be explained in a moment. The only other way 
of testing an induction is by other inductions in different 
terms so taken as to show the validity of the first. These 



92 POLITICAL ECONOMY. 

subsidiary inductions and deductions are sometimes called 
Verification, which is not a new process at all. 

Descartes thought he had a test of the truth of a general- 
ization in the vividness and strength with which the concep- 
tion came home to his mind. He says : ' ' Credidi me pro 
regula generali sumere posse id quod valde dilucide et dis- 
tincte concipiebam verum esse." I have thought that I coxdd 
take as a just generalization that which I very clearly and 
vividly conceived to be true. Probably it is hard sharply to 
distinguish the scientific satisfaction — the joy of a new 
generalization — from the skill to use the scientific process ; 
clearness is indeed a part of the proof, since the reliance 
is wholly on the free action of one's own mind ; and so far 
forth Descartes is undoubtedly and interestingly right ; but 
the truth remains, that the result of a process of scientific 
reasoning can only be confirmed or overturned by another 
process of scientific reasoning. Sometimes a single experi- 
ment is enough to establish an induction, as when Franklin 
with his kite and key proved the identity of lightning with 
electricity ; but more commonly repeated observations, exper- 
iments, or experience, are needful, such as those that have 
proved the law, that rising prices follow a depreciated 
money. 

Deduction, on the other hand, is the process by which, 
beginning with a general truth, which itself probably has 
been inductively ascertained, we seek to connect that with 
some particular case by means of a middle term, or class 
of objects, known to be equally connected with both. Thus 
we bring down the general into the particular, affirming of 
the latter the distinctive qualities of the former. Deduction 
is thus the opposite process to Induction. Inductively we 
pass up from less to more inclusive propositions, and deduc- 
tively we pass down from more to less inclusive propositions. 
Both processes intermingle continually in scientific reason- 
ings, and nothing else is strictly reasoning but the use of one 
or the other of them. Bacon put his great stress on Indue- 



FIELD OF TUB SCIENCE. 93 

tiou, because he headed a reaction from the Aristotelian 
logic which was deductive, yet he did not overlook the true 
place of Deduction, for he says : * " Axioms duly and ordt riy 

formed from particulars easily discover the way to new partic- 
ulars, and thus render sciences active." Just now we noted 
Franklin's famous experiment as leading to the induction 
that lightning and electricity are identical. The generaliza- 
tion having been gained, deduction has a chance to work 
now. It had long been observed that electricity could be 
conducted from point to point ; if electricity, then lightning ; 
therefore, inferred Franklin, a pointed iron rod elevated 
above buildings will conduct lightning from the clouds into 
the ground. The lightning-rod is the gift of deduction. 
Whenever a general rule reached by careful induction can 
be fortified by a deduction from a more general law that has 
been inductively framed and in which confidence is felt, that 
rule is almost certainly true. For example : we say that 
apple-tree blossoms are five-petaled, because blossoms from 
a large number of trees in many localities have been ob- 
served to have just five petals ; in that case, we affirm 
inductively ; but the botanists lay down a law that they 
have reached by induction, that outside-growcrs, when they 
have petaled flowers, have them five-fold ; now apple-trees 
are outside-growers ; and therefore, deductively also, apple- 
tree blossoms are five-petaled. As this point is important, 
let us take a second example from economics. It has been 
observed in a score of cases that the use of an inferior 
mone}' is followed by a rise of prices, and no instances to 
the contrary are recorded ; the rule is perhaps sufficiently 
made out by induction ; but when we can deduce beforehand 
the same rule from the nature of money as a measure of 
values, the rule becomes as certain as any thing can be made 
by reasoning. 

The sciences fall easiby into three great classes, namely, 
the Exact, the Physical, and the Moral, seienccs. The 

A T ovum Organon, 1, 24, quoted by Muclcod in Econ. PhiL, chap. L 



94 POLITICAL ECONOMY. 

exact sciences consist only of the formal Logic, and pure 
Mathematics. These are wholly deductive. Stuart Mill 
argues at much length in his ' ' Logic ' ' that even the axioms 
of pure mathematics are originally gained by induction, 
while others claim that their truth is perceived intuitively, 
but no matter how this point is decided, the processes of the 
mathematics are from the general to the particular. So it 
is also with the Aristotelian logic, whose major premise, 
whether only supposed to be true or having been inductively 
proved, is alwaj^s general in terms. This is the form of the 
syllogistic logic : — All sinners deserve to be punished ; John 
Roach is a sinner ; therefore John Roach deserves punish- 
ment. 

Physical sciences are those concerned with the classifica- 
tions and laws of action belonging to material substances. 
There are a great circle of these. N They have been mostly 
developed since the time, and in accordance with the 
methods, of Lord Bacon. They are such as Astronomy, 
Acoustics, Botany, Chemistry, Dynamics, Geology, Optics, 
Physiology, Statics, and Zoology. The subject-matter of 
each of the physical sciences is open to observation and 
experiment, to induction and deduction, and to corrective 
verifications, in the manner already pointed out. Each of 
these sciences has a distinct class of objects or phenomena 
to which its attention is directed ; the class is circumscribed 
by the scientific conception and definition ; its devotees as 
a rule are skilled in using the Baconian tools ; and conse- 
quently, its conclusions receive the confidence and control 
the action of men. All of the physical sciences are con- 
stantly enlarging "the body of exact definitions and sound 
principles" connected with their several classes "of facts 
or phenomena." 

Moral sciences are those concerned with the classifications 
and laws of action belonging to beings having thoughts and 
desires and will. Among these sciences may be mentioned 
Metaphysics, Ethics, and Economics. Each of these, and 



FIELD OF THE SCIENCE. 95 

of all other moral sciences, is concerned with a single class 
of phenomena, which may be exactly conceived of and 
defined. But induction cannot march up with quite so sure 
a stride, nor deduction descend with so large a degree of 
certainty, in relation to persons endowed with free-will, as in 
relation to physical substances held firm in the grip of un- 
varied law. Still, the doubt attaches far more to the actions 
of an individual than to the actions of the masses of men. 
It is much easier to know human nature in general than one 
man in particular, because many inductions guided by obser- 
vation and history make it almost certain how masses of men 
will act under a given set of conditions, while any individ- 
ual may act in a contrary way. Deduction, accordingly, 
cannot hold quite the same place in the moral sciences so 
far as individuals are concerned, as it holds in the physical 
and exact sciences ; but this lack is perhaps more than made 
up by other advantages. Experience in the moral sciences 
corresponds to experiments in the physical sciences. Then 
there is the great advantage of introspection : each man has 
within himself the means of interpreting and of testing the 
inductions of metaphysics, ethics, and economics. Then 
also there is the great resource of feigned cases, which, pro- 
vided only they be cast's possible to occur, opeu up to rea- 
soning a new means of proving and correcting. Besides 
these, which it enjoys in common with them, economics, as 
we shall see, has oue other great advantage over and above 
the rest of the moral sciences, which all, moreover, art 1 
stronger and more developed on account of their close 
relation to and opportunity of being tested by, a Divine 
Revelation, whose ends indeed are not scientific, but whose 
methods and conclusions may often be a test of science. 
1. Let us now apply the points of this brief discus 
of the sciences in general to the particular science now in 
hand. In the first place, is there a single class of facts 
easily conceived of and defined as such. — easily ciivum- 
scribed and separated from all others, — with which alone 



96 POLITICAL ECONOMY. 

Political Economy has to do ? We answer, Yes. Sales are 
a ver}^ definite thing. They are never confounded with gifts, 
and they are never confounded with thefts. They have a 
distinctive character of their own. They have always been 
in the world, will always be in the world in ever multiplying 
volume, and no one ever mistakes their main features for 
something else. Political Economy is the science of sales, 
or exchanges. Any thing whatsoever that is salable, or can 
be made so, comes within its view, and scientifically it cares 
nothing whatever for any thing else. While it finds its field 
definite, it finds it also very large. It has no wish to en- 
croach on other sciences, nor will it tolerate any encroach- 
ments on its own. Before any thing is sold, or is being made 
ready to sell, it cares not what other science employs itself 
upon that thing ; after the thing is sold, economy loses its 
interest in it, and other sciences may take it up if they 
choose. Salableness is the one quality that constitutes the 
class of things with which the science is conversant, and it 
claims complete jurisdiction over all things just so far forth 
as they have this quality, and no farther. Now there is in 
the actual world such a class of things ; and accordingly, 
Political Economy possesses the first grand condition of a 
science. 

It is at this point that we can see the failure of some 
otherwise great writers on Political Economy. When Adam 
Smith talks of " the annual produce of land and labor," 
he gives us no distinct and general conception of what the 
subject of Political Economy is. He does not start with a 
clearly-defined class of tilings; and, consequently, there is a 
cloudiness and lack of scientific precision in some parts of 
his book, in striking contrast with the vigor and logical 
sequences in the other parts. The same is true of John 
Stuart Mill. On his first page he says, "Everyone has a 
notion sufficiently correct for common purposes of what is 
meant by wealth." A little further on, "It is no part of 
the design of this treatise to aim at metaphysical nicety of 



FIELD OF THE SCIENCE. 97 

definition where the ideas suggested by a, term are already 
as determinate as practical purposes require." Mill, then. 
as embodying the conception that lies at the basis of ova. 
science, gives us the word w * wealth," and assumes that both 
be and his readers have "a notion sufficiently correct" of 
what is meant by that term ; but, unfortunately, the sequel 
shows how ill-founded this assumption really is. Once, 
indeed, he gives us a clear conception in connection with 
that word: "Every thing therefore forms a part of iceallh 
which has power of purchasing." But he almost immedi- 
atel}* confuses this conception, when he says, " I shall 
therefore in this treatise, when speaking of wealth, under- 
stand by it what is called material wealth." But a little 
further on he says, "The skill, and the energy, and perse' 
verance of the artisans of a country, are reckoned part of 
its wealth no less than their tools and machinery." Also, 
" acquired capacities which exist only as a means, and have 
been called into existence by labor, fall rightly as it seems 
to me within that designation." But in an another place 
and contrariwise, " The production of wealth is the extrac- 
tion of the instruments of human subsistence and enjoyment 
from the materials of the globe." Again, " it is essential 
to the idea of wealth to be susceptible of accumulation." 
Also, " I should prefer, were I constructing a new technics 
language, to make the distinction turn upon the permanence 
rather than the materiality of the product," since sen ices 
''which only exist while being performed cannot be Bpokei 
of as wealth except by an acknowledged metaphor." Stilt 
further, though credit is obviously neither material nor per- 
manent, — "Credit, though it is not productive power, is 
purchasing power." And, "Credit, in short, has exactly 
the same purchasing power with money." 

These quotations are enough, and more than enough, to 
show two things conclusively. First, they show that the 
leaders of the second school are inconsistent with themselves 
; n their general conceptions of the subject-matter of the 



98 POLITICAL ECONOMY. 

science. They begin nowhere. They have no steady class 
of facts to deal with. They have indeed demonstrated many 
important truths, and they have done excellent practical ser- 
vice for the welfare of mankind, but in the entirety of their 
scientific work one can take but little satisfaction. It is on 
account of this comparative failure in their scientific outset, 
that the second school have declined in influence, and are now 
likely to be superseded. On the other hand, when Bastiat 
or Macleod, by their very definition of the science, recognize 
a definite class of things with which alone the science has 
to do, namely, exchangeable things, or what means just the 
same, salable things, or what is just the same, valuable 
things, a clear conception is had at once, having which as 
the prime condition, a true and lasting science may be 
obtained, provided only the next right steps be taken also. 
Second, they show how useless the word "wealth" is for 
any scientific use whatever even in the hands of a professed 
logician. As we have seen, the sense of this word was too 
indefinite in the mind of Mill to give him any hold at all 
of a broad and constant economic conception, which is the 
first condition of a true growth in this science ; and if this 
be so, it is certainly too indefinite in the minds of common 
men to make it possible that it should serve any useful sci- 
entific end. Then again the word is too concrete to do the 
work assigned to it in a broad definition, because in most 
men's minds it means only material things. Even Mill says, 
"it is essential to the idea of wealth to be susceptible of 
accumulation." But he also says, what is contradictory to 
that, — " Every thing forms a part of wealth which has pur- 
chasing power." Now material things are not the only 
tilings, nor the most important thiDgs, which have purchasing 
cower. Labor has purchasing power. Eights have purchas- 
ing power. If we could determine the sums paid out in this 
country for a year as the wages of labor, from those of the 
President of the United States down to those of the common 
day laborer, including the rewards of all professional skill ; 



FIELD OF THE SCIENCE. 99 

and if we could estimate the sums paid out in the same time 
as a return for rights of all sorts, such as bonds, Bhares, 
leases, and other credits ; we should soon discover that 
material things form but a small part of the purchasable 
things. 

So indefinite and so concrete and therefore so inadequate 
is the meaning of this word " wealth," and so prominent 
has been made its place near the foundations, that a chief 
reason of the slow progress of the science hitherto has been, 
that it tried to use a word for scientific purposes which no 
amount of definition and explanation and manipulation could 
make suitable for that service. This word has proved to 
be the bog whence most of the mists have arisen that have 
beclouded the whole subject. This is the more to be re- 
gretted, inasmuch as there is no need of the word at all. It 
is true, that even Bastiat and Macleod continued to use the 
word in subordinate places ; but there was no advantage, 
but rather a waste of strength in their doing so, because 
there are other good words all ready to take its place. In 
wholly dropping the word as a technical term, which was 
first done in this book in 18G5, Political Economy has dropped 
a clog, and its movements are now relatively free and certain. 
If a general term be needed to express the sum of all valua- 
ble things ; and if a term be needed, as it is, to express an 
estimate of valuable things not yet subjected to the test of a 
sale ; let that word be Property, which in its original Latin, 
and in English also, has an abstract rather than a concrete 
meaning, and denotes a right of jvxsessing, using, enjoying, 
selling, and destroying, any thing. When used in the follow- 
ing pages, the word will always be given the same sense that 
Ulpian gave to it, namely, " That is Property which eon fa 
bought and sold;" and then the word VALUE will always be 
used when a more definite and technical term is required. 

2. In the second place, having our definite class of things 
to begin with, are these all open to the common pro. 
of scientific generalization? We answer, that they arc 

L sf C. 



100 POLITICAL ECONOMY. 

remarkably thus open. Not one resource is denied us. 
All the tools of the scientific workshop are at our hands, 
(a) The experience of all the past in the matter of sales 
very fully recorded on the pages of history, the experience of 
all the different nations at the present time in these matters 
of money and trade, and what is passing right before our 
eyes in the buying and selling of daily life, affords Induc- 
tion all the chance it could ask to try its hand. Instances 
abound. Particulars may be gathered up one by one and 
linked into the inductive chain. If any doubt be felt about 
the strength of any one of these chains, another one may at 
once be forged in terms drawn from another field of experi- 
ence with a view to test the strength of the first. Circum- 
stances in different countries and in the same country at 
different times do indeed differ, and care must be taken 
to avoid the common fallacy, post hoc ergo propter hoc ; on 
the other hand, the instances in most cases are so many and 
varied, that there is no great difficulty in throwing out right 
and left the non-causal elements, and connecting in both 
ways effects with their causes. In this general point of view, 
the United States is the most fortunate of countries, because 
here there are States with substantive powers of control 
over most matters of trade within their borders, as well as 
a Nation with sovereign powers of control over some points 
of trade within the country as a whole. This feature has 
given birth to commercial experiments of all kinds ; and 
Induction rejoices in the abundant materials for generaliza- 
tion thus furnished free of cost to Science, though unfortu- 
nately not free of cost to the People. As a single example 
of the inductive method in economics, let us take the follow* 
ing: most if not all the States in this Union have passed 
at one time or another what are called Usury Laws, or laws 
forbidding lenders of money to take more than a given rate 
of interest. It has been uniformly observed, that such laws 
are constantly violated especially in large towns, because 
it is contrary to reason that a man should not sell the use 



FIELD OF THE SCIENCE. 101 

of his money on the best terms he can get, just as he sells 
the use of any other form of property ; that such laws when 
not violated work essential injustice to the lender whenever 
the market rate of interest is higher than the legal rate ; 
that such laws so far as obeyed work injustice to borrowers 
as tending to restrict the loan-market, and so far as violate d 
as tending to compel them to pay even more than the market 
rate as compensation to the lender for law-breaking ; and 
that such laws often lead to litigation, chicanery, and oppres- 
sion of the poor. The economist noting ill effects in all the 
instances under his observation comes to the clear conclusion 
inductively that usury laws are wrong. 

(6) We have already seen that Deduction has not quite 
the same scope in the moral as in the plrysical sciences, 
because any individual may act contrary to the probable 
action of many individuals. Still deduction is a safe and 
potent process even in the moral sciences, since it may de- 
scend securely from the larger masses to the smaller, even 
though the individual may perchance escape. This is partic- 
ularly true of deductive economics, owing to the simplicity, 
universality, and certainty of the impulses that lead men to 
exchange. Well writes John Bascom : " Between one dollar 
and two dollars a man has no choice, he must take the 
greater ; between one day and two days of labor, he must 
take the less ; between the present and the future, he must 
take the present. This is not a sphere of caprice, nor 
scarcely even of liberty ; the actions themselves present no 
alternative, and, if an alternative giving an opportunity for 
choice does arise, it arises from some partial or individual 
impulse, — from some one of those transitory and foreign 
influences, which, while rippling the surface, neither belong 
to nor affect the current of the stream." As an illustration 
of economical deductions let us look again to the case of 
usury laws. Jeremy Bentham 1 >y a grand induction of par- 
ticulars reached the truth and statement, that usury laws are 
economically wrong. His induction took no note of the 



102 POLITICAL ECONOMY. 

experience of the people of Massachusetts. But the Legis« 
lature of that State in 1867, having become more or less 
familiar with the reasoning of Bentham, and having made 
inductions of its own from local and neighboring experience, 
passed down from the generalization, that usury laws are 
everywhere injurious, to the specific proposition, that such 
laws were injurious to the people of Massachusetts, and so 
it abolished these laws for that State. The deduction was 
well taken ; and the people have ever since been pleased 
with their liberty of contract in this particular. But it must 
not be inferred from these instances, that induction and 
deduction always pursue a separate and distinct path in 
economical reasoning ; for the two processes commingle 
constantly, and neither is always carried out in full and due 
form, since premises used by the mind are often dropped in 
the statement, and shortened forms of expression take the 
place of long-drawn-out logical formulas. Nevertheless, all 
good reasoning is analyzable into one or the other of these 
processes. 

(c) Economical reasoning has a vast advantage both in 
gaining its starting-points and also in guarding its steps 
in that power of Introspection that is possessed by every 
man, woman, and child. Everybody buys and sells. Almost 
everybody watches the action of his own mind enough to see 
what are the motives in buying and selling. Even the child 
knows that in each act of exchange something is rendered 
and something is received. Everybody within the pale of 
compos mentis knows that it takes two to make a bargain, 
and two to make a trade. Each party to a trade knows 
what his motive is in making it, and soon comes to know 
that the other party has a corresponding motive. It is not 
needful that a man should be a banker or merchant or even 
a so-called "business man" in order to know just as well 
as anybody can know that what is rendered in an exchange 
is thought less of on the whole than what is received. The 
slightest introspection tells any man that. As this must 



FIELD OF THE SCIENCE. 103 

always be true of each of the parties to any exchange, that 
which is rendered by each must stand in a different relation 
to his own mind from that which is received by each. In 
other words, each is glad to part with something for the sake 
of receiving something else ; and this higher estimate put 
by each on what is received from the other marks for each 
the gain of the exchange. A very little introspection will 
inform any person, that were this higher estimate wanting 
in the mind of either of the two parties, the trade would not 
take place at all. It is perfectly natural to trade when these 
conditions are present, and morally impossible to trade when 
they are absent. Hence no law or encouragement is needed to 
induce any persons to trade ; trade is natural, as any person 
can see who stops to ask himself why he has made a given 
trade; and on the other hand, any law or artificial obstacle 
that hinders two persons from trading who would otherwise 
trade, not only interferes with a sacred right, but destroys 
an inevitable gain that would otherwise accrue to two per- 
sons alike. Introspection, accordingly, breaks up some 
economical fallacies. "How would you like it yourself ? " 
is often a relevant question to inquirers in this field. An 
easy self-knowledge open to all persons alike thus gives 
sound starting-points and guides to safe steps in economics. 
(d) The Greek language has a distinct form of expression 
for that class of suppositions that might possibly become 
facts, and thus the acute mind of the Greeks marked a 
decided difference between such suppositions and others 
impossible to become facts. This distinction must always 
be borne in mind by those who use or note in economical 
reasonings the expedient of Feigned Cases. These are 
always legitimate and often pregnant whenever they may 
be realized in actual fact; but otherwise, no inference at all 
can be drawn from them, because it is a universal truth in 
nature and in logic, ex nihilo nihil Jit, out of nothing nothing 
can come. But a supposition that may clearly be realized 
in fact is a substantive thing, and inferences may he drawn 



104 POLITICAL ECONOMY. 

from it, just as geometrical inferences are drawn from a sup- 
posed circle. Let us take an illustration from Paris. While 
these lines are being written the Monetary Conference of 
1881 in that city is just adjourned. Able and eloquent men 
represented in that conference the United States, all the 
nations of Europe, and even the distant India ; but some of 
these representatives, in their eagerness for a factitious ratio 
of value between gold and silver, forgot the important dis* 
tinction now in hand, and argued of the good results to flow 
from the realization of a supposition, which itself is impossi- 
ble to become a fact. The French and American delegates, 
through Mr. Evarts, made this declaration : " Any ratio now 
or of late in use by any commercial nation, if adopted by an 
important group of states, could be maintained; bat the adop- 
tion of a ratio of 15^ of silver to 1 of gold would accompilish 
the principal object with less disturbance in the monetary sys- 
tems to be effected by it than any other ratio.'" The fallacy 
in this passage is in the words " could be maintained" which 
are a supposition, and what is much worse, a supposition 
contrary to fact, from which all arguing is nugatory. Why 
it is contrary to fact will be seen at length in our chapter on 
Money. On the other hand, the Monetary Conference of 
1867 in Paris, as its judgment was voiced by Mr. Ruggles, 
argued the benefits of an international coinage of gold with 
logical propriety, because, while that was then a mere suppo- 
sition, it was a supposition possible any day to become a fact. 
An international coinage of gold is a simple question of equal 
weights in the coins of different countries : an equivalence of 
values between gold and silver coins for any great length 
of time is neither simple nor possible. 

(e) This last point leads us naturally to the most impor- 
tant advantage that Economy has in its methods of reason- 
ing over the other moral sciences, namely this, that the result 
of each economical process may be stated numerically in the 
terms of money, while mental, ethical, and other moral pro- 
cesses can only be loosely weighed and estimated. This 



FIELD OF THE SCIENCE. 105 

Bingle fact, to say nothing of other connected facts, puts 
Economy far in advance of the other moral sciences in a 
scientific point of view : it has an ever ready test which they 
from their nature never can have. An economical blonder, 
whether in legislation or in private action, pretty soon proves 
itself to be such by the lessened gains of somebody, and 
these losses can be stated arithmetically ; and similarly, an 
economical improvement evidences itself at once by increased 
gains coming to somebody ; while it may take years and years 
to work out the results of an ethical mistake, and even then 
their amount can only be guessed at. Theories in meta- 
physics can only be tested by the reason of men, and rea- 
sonable men without apparent bias of motive take opposite 
views of sensations and intuitions ; while theories in econom- 
ics, which can be even better tested by the reason, have an 
additional and almost immediate and constantly recurring 
test through men's pockets and the tables of the census. 
The truth is, that all these matters of exchange come homo 
intimately to each man, woman, and child ; they have at 
hand the means of judging and comparing the effects of 
good and bad laws, and of good and bad practice generally ; 
the people indeed sometimes deceive themselves, and are also 
too often duped by others, in these matters ; but it is none 
the less of the utmost consequence to this science that all its 
results work themselves at last into a definite shape — into 
figures that cannot lie — and stand out like landmarks against 
the sky. It is not, as in ethics and metaphysics, that ten- 
dencies and potencies only are ascertained, but every tiling 
drifts at once into measurable facts, and may be hardened 
into statistics. The science certainly does not arise out of 
statistics, and is not strictly dependent on them, though it 
uses them and rejoices in them as a help. So far as this, all 
economical authorities are agreed. But when .levous con- 
cludes from the conceded circumstance that every thing 
whatsoever economically exchanged has a atandard of meas- 
urement in money, that economics may therefore become a 



106 POLITICAL ECONOMY. 

strictly mathematical science, "a calculus of pleasure and 
pain ; ' ' and when Macleod from the same circumstance calls 
all exchangeable things technically " quantities," and applies 
mathematical formulas to them, and concludes accordingly 
that Economy is a " physical," as well as moral, science, 
or as he calls it, "a great moral science both inductive and 
deductive framed on the strictest model of a physical sci- 
ence ; " there are those, and the present writer is among 
them, who are disposed to cry a halt. We saw in the last 
paragraph that a question of weights is a very different thing 
from a question of values, because the thoughts and feelings 
and will of men cannot affect the former at all, while they 
entirely create the latter. If the distinction already made 
between a physical and moral science be Avell taken, as it is, 
then Economy cannot belong to both ; it is either a science of 
Persons or a science of Things, as those terms are commonly 
contrasted, and it makes confusion to mix the two ; besides, 
there is no gain to come from it, so far as we can see, but 
obviously some loss, because many persons can master eco- 
nomics thoroughly who find it difficult to master mathematical 
formulas at all ; and it seems a violence to the term " quan- 
tity " to include under it a mere service sold, as for example 
the service of Dr. Bliss in medically attending upon the wound 
of President Garfield. It is true, that personal services and 
all other valuable things are either sold against money, or may 
be measured in the terms of it, and this is no small aid to the 
science, as we have seen, but it does not seem as if this were 
enough to make the science one of " quantities," or to open 
it up for the display of a mathematical " calculus." Jevons 
and Macleod are both excellent economists, and no ultimate 
harm can come to the science from their attempts to render 
it " exact ; " but we venture to assure our readers that they 
can explore, if they will, all the recesses of the temple of 
Economics without going through the portico of Analytics. 1 

1 See Jevons's Theory of Political Economy, particularly ( hap i., aud Macleod's 
Elements of Economics, vol. i. chap. ii. (edition 1SS1). 



FIELD OF THE SCIENCE. 107 

3. In the third place, while Political Economy is strictly 
and only a moral science as distinguished from a physical 
science, that is to say, has to do with the laws of action 
belonging to persons and not those belonging to things, still, 
there is another current sense of the word " moral," in 
which Political Economy is not a moral science at all ; and 
that is the sense in which the word is used as synonymous 
with "ethical," or " obligator}'. " Paley defines Ethics as 
"the science of Duty and the reasons for it ; " and it is in 
this ethical sense that we sometimes speak of the science 
of Morals, or of Moral Science. Now, the idea of obliga- 
tion, on which ethical science is founded, and the idea of 
value, on which the science of economy is founded, are 
totally distinct ideas. Both are "moral" sciences in the 
proper sense of that term as opposed to "physical" sci- 
ences, though it is important to see clearly the vital distinc- 
tion between the two. There is one word that marks and 
circumscribes the field of Ethics, and that word is Ought: 
there is one word also that marks and circumscribes the field 
of Economics, and that word is Value. The imperatives 
of ethical obligation rest upon the consciences of men, and 
Duty is to be done at all hazards : guilt is incurred if it be 
neglected : pecuniary gains and losses, however large, do not, 
or at least ought not, weigh a feather as against an intuition 
of Right. Economy, on the other hand, does not aspire to 
place its feet upon this high ground : it finds a solid and ade- 
quate though not a lofty footing upon the expedient and the 
useful : no man is ever under any obligation to make a trade : 
he properly makes it or not according to his present sense 
of its gainfulness to himself. Ethical science appeals only 
to an enlightened conscience, and certain conduct is ap- 
proved because it is right, and for no other reason : econom- 
ical science appeals only to an enlightened self-interest, and 
exchanges are made because they are mutually advanta- 
geous, and for no rther reason: each of the two sciences, 
therefore, has a basis and sphere <-f its own, and the -rounds 



108 POLITICAL ECONOMY. 

of the two are not only independent but also incommensura- 
ble. Economy does and must discuss and decide all ques- 
tions on economical grounds alone, aud as a science has no 
direct concern with questions of ethical right. It favor3 
honesty and morality indeed because these facilitate ex- 
changes. It puts the seal of the market upon all of the 
virtues. It condemns slavery, not so much because it is 
ethically wrong, as because it is economically ruinous. Still, 
after all, each science has some points of contact with other 
sciences, and this is particularly true of ethics and econom- 
ics, and may be the reason why the two have sometimes 
been confounded with each other. The system of the uni- 
verse appears to be one ; and, at any rate, the sound con- 
clusions of economics seem to be harmonious with the sound 
conclusions of ethics, since both certainly work for the 
good of men, — for the amelioration of their condition. 
The spheres of the two, though entirely distinct, neverthe- 
less touch each other. Duty and interest lie alongside. 
The ultimate analysis of Property, for example, will, as we 
may see hereafter, lead the inquirer into the higher region 
of ethical truth. In legislation also, the question is fre- 
quently at the same time an ethical and an economical one, 
which led Wayland acutely to observe that " almost every 
question of the one science may be argued on grounds 
belonging to the other." 

4. In the fourth place, our science, as the adjective 
"political" clearly implies, relates to men in a state of 
Society, and not to men in a state of isolation. It is a social 
as well as a moral science. The hermit who neither buys 
nor sells, who neither gives nor receives any thing in ex- 
change, is in no sense amenable to the laws of Political 
Economy. Robinson Crusoe, for instance, came to lead 
a very tolerable life upon his desolate island by means of 
his own industry directed so as to satisfy his own wants 
by his own efforts. He did every thing for himself, and had 
no opportunity to buy any thing, sell any thing, exchange 



FIELD OF THE SCIENCE. 109 

any thing. The whole course of such an isolated life could 
never develop the idea of Value, and the record of the whole 
experience of such a solitary individual would require no 
such word as Value. Moreover, all men, even in the most 
advanced states of society, still satisfy some of their own 
wants by their own efforts without exchange, and just so far 
as they do this, they stand outside the pale of economics. 
"When a man shaves his own face, our science has nothing 
to say : when the barber shaves him for a fee, it has a good 
deal to say. If men had been so made, and the world 
around them had been so made, that each man could as well 
meet his varied wants by his own direct efforts as by the 
intervention of mutual exchange, then each would certainly 
have grown his own food, made his own clothes, hammered 
out his own tools, been his own doctor, and so on through 
the list of his wants ; and under those circumstances the 
notion of Value would have had neither birth nor being, and 
of course such a thing as a science of Value could have had 
no possible existence. 

But it is evident at the very first glance that neither men 
nor the world have been so made. Society is God's handi- 
work. It is the most complicated and the most wonderful, 
as it was the final, work of His hands. The first man, as he 
stood alone in the earthly Paradise, was indeed a wonderful 
structure, — wonderful in his body, and in all his mental 
and spiritual powers. But it was not good that the man 
should be alone. Society must be provided for ; aud m 
providing for a society of human beings, they were made 
very dependent upon each other for existence, for happi- 
ness, and for melioration. The entire organization of soci- 
ety, in its lower and in its higher parts, in the phenomena 
of exchange and in the phenomena of ethics, displays those 
peculiar laws that mark a divine hand; and no intelligent 
observer can watch their working, when left intact and free, 
without being stimulated and gladdened by the benefioent 
results to which they lead. If the footsteps of providential 



110 POLITICAL ECONOMY. 

intelligence and goodness be found anywhere upon this 
earth, they are discernible in the fundamental laws of Soci- 
ety. 

So far, too, as economics are concerned, there is a wonder- 
ful correspondence between the structure of society and the 
structure of the physical earth. Both work together to keep 
men in a state of mutual dependence, and on a plane of 
rising comforts. The limitations which men find in them- 
selves, and which bind them into a society^ correspond in 
their effects with the obstacles in the way of the satisfaction 
of men's desires found on and under the surface of the 
earth. The almost incredible increase of men's powers and 
enjoyments through their combination in one place, and 
co-operation in distant places, will be the burden of a later 
page ; but it is proper in this paragraph on the social char- 
acter of our science to call attention to the natural obstacles 
interposed between the isolated man and the supply of his 
various wants. If any one man tries to surmount a consid- 
erable number of these natural obstacles, he must miserably 
fail, because his powers are not adequate to the task ; and 
hence it follows, that in a state of isolation men's wants 
exceed their powers ; but let the same man devote himself to 
overcome but one class of obstacles, for instance, those in 
the way of procuring suitable clothing, and his powers are 
adequate to this, he soon acquires skill in it, he learns to 
avail himself of the free help of nature and the facilitat- 
ing processes of art, he is able to realize large products 
along his line, and is now ready to offer his surplus in ex- 
change with other men, who meanwhile have been giving 
themselves each to another class of obstacles, have concen- 
trated efforts and skill upon them, have succeeded by the 
help of nature and art in surmounting them, and are now 
ready to offer their surplus products to society in exchange ; 
and, the exchanges being made in all directions, men always 
find that they thus obtain vastly greater satisfactions for 
their various desires than they could possibly get by direct 



FIELD OF a'IIE SCIENCE. Ill 

iffort; so that we may even say, that, in a stale of society, 
nen's powers tend to overtake their wants. Under the social 
ostein of exchange, a division of employments becomes 
possible, all peculiar talents find scope, industry becomes 
steady, obstacles gradually give way in all directions, moun- 
tains are pierced, rivers are bridged, forests are levelled, 
fields are made fertile, mines are opened, and oceans are 
crossed ; a vast increase of useful products comes into exist- 
ence, and each part of the earth ministers to the wants 
of every ether part ; as measured by effort, every thing comes 
easier to everybody, as measured by quality all products 
become better, and as measured by quantity there are more 
articles and in greater variety ; and it follows, of course, 
that there are more satisfactions of all men's desires. 
Political Economy, therefore, which unfolds the reasons and 
the laws of exchange, finds its only field in a state of Soci- 
ety. 

There is another reason why Political Economy is a social 
science : it touches at certain points on the action of Govern- 
ment. For example, the minting of the current coin, which 
is so indispensable to the ongoing of exchanges, has always 
been considered as a function of the Government. "Whose 
is this image and superscription? " asked our Lord. The 
answer came then, as it would come now in substance the 
world over, "-Caesar's." It would seem as if the govern- 
ment stamp authenticates the weight and fineness of the coin 
better than any other known expedient can do it ; and, if so, 
our science must acknowledge a direct obligation to society 
through such action of its government. The whole matter 
of taxation, also which is certainly an economical topic, is 
closely connected with questions of government ; and the 
form and amount of taxation depend at last on the action 
of government, though the views of the economista have 
already been influential in determining these. The laws of 
property, of sale, and of bequest, all of which are of supreme 
importance in an economical point of view, hinge also od 



112 POLITICAL ECONOMY. 

governmental action. All this shows that our science 
touches at several vital points on the far more comprehen- 
sive science of government, and marks the fact, that, as 
no individual can be completely isolated from society, so no 
science can be completely isolated from the rest of the family 
of sciences. More or less each touches and influences the 
rest. Still, we shall find it to be a dictate of sound reason 
as well as a sharp lesson from experience, that the less 
government has to do in matters purely economical, the 
better. The points of contact we concede ; the asserted 
jurisdiction and control we deny. Self-interest, which is 
the motive power in exchange, while at a few points it 
accepts the help, will not at other points tolerate the inter- 
ference, of government. 

5. In determining now the exact field of our science, it 
only remains in the fifth place, to throw out all those defini- 
tions that give it too broad a range, and to propose an exact 
and final definition. For example, Say defines it "as the 
science of Society ; a science combining the results of our 
observations on the nature and functions of the different parts 
of the social body." This is far too broad. Society is a vast 
organization, and there is no one science that can embrace it 
all. Government, Ethics, and Economics, all have a place 
within this great sphere. So, too, Sismondi regards " as the 
object of Political Economy the physical welfare of man, so 
far as it can be the work of government." But this is too 
broad, too narrow, and too confusing, all at the same time. 
Several other things besides economics and government con- 
tribute to " the physical welfare of man ; " then economics 
contribute to other parts of man's nature besides his " phy- 
sical" nature ; and also the uniting of "government" and 
" political economy " in this intimate way precludes a clear 
genera] conception of the latter. On the other hand, we 
place the field of the science just where Whately places it, — 
" catallactics, or the science of exchanges ; " just where the 
continental Kiehl puts it, — "Die Lehre von den Werthen" 



FIELD OF THE SCIENCE. 113 

Tlie doctrine of Values ; and just where Madeod locates it, 
though we do not like the term " quantities " in this connec- 
tion, — " the science which treats of the laws which govern the 
relations of exchangeable quantities." Any one of the three 
following definitions, which are the precise equivalents of each 
other, namely, the science of Sales, the science of Exchanges, 
the science of Value, gives a perfectly definite field to Political 
Economy. "We shall use the three interchangeably, though 
for the present emphasizing the last. To determine with 
the utmost distinctness what Value is, to separate it from 
some things which have often been confounded with it, and 
thus to lay a foundation for the science at once solid and 
complete, will be the work of the next chapter. 

But as we have already noted in the persistent use of the 
indefinite word " wealth" the first great reason of the slow 
advance hitherto made in this field of inquiry, it is in order 
at this point to call attention also to the second great reason 
of this tardy progress. This is found in the peculiar (though 
not indefinite) meaning of the word " Value " and its equiv- 
alent terms. Value is a relative word, and so is Sales, and 
so is Exchanges. The difficulty, however, does not lie in the 
words as such, but in the very subject-matter of the science. 
Sales imply both a seller and a buyer ; exchanges imply two 
things given one for the other ; and value may be briefly 
defined as purchasing-power, that is to say, the value of any 
thing is its power of purchasing other things. Value is not 
an independent quality of one thing, as height is a quality 
of a tiee, and hardness a quality of a stone, but it is a quality 
of one thing as estimated in a corresponding quality of some- 
thing else. It is not a quality of gold as gold, but a relation 
of purchase which that gold holds to certain other things 
which it will buy. The notion of Value is not conceivable 
except by a comparison of two things, and what is more, of 
two firings mutually exchanged. Political Economy accord* 
ingly is bottom-l>aM <l upon a relative idea, and has to do 
from beginning to end with a relation of mutual purchase 



114 POLITICAL ECONOMY. 

established between two things. Now in this there is an 
inherent difficulty, which proves to be greater to some minds 
than to others, and one which can never be obviated to 
beginners, nor be wholly obviated to anybody except by 
constant familiarity with it. It lies in the very nature of the 
subject. Men much more readily apprehend an absolute idea 
than a relative one. They much more easily follow a dis- 
cussion touching the independent attributes of single objects, 
such as length, breadth, thickness, and many others, than a 
discussion touching Value, which is not an attribute of any 
one thing, but a relation subsisting between two things. 
This is the prime difficulty in this class of inquiries, and 
has been a main reason of the slow progress made in them. 
Economical writers have not called attention as they should 
to this difficulty at the outset, nor have they themselves 
wholly escaped the snares that lurk around it. 

In thus circumscribing the field of Political Economy, and 
yielding ground that has been sometimes claimed as falling 
within it, we all the more assert complete jurisdiction over 
the territory as thus defined. No other possible science can 
have any thing to do with the gaining of property by means 
of exchanges. Theft is out of the question here. So are 
gifts. It makes no difference what a man's motives may be 
in buying and selling, it makes no difference what his ulti- 
mate purposes may be as to the results of his buying and 
selling, the buying and selling must proceed in accordance 
with the principles of this science. Saint and sinner must 
plough with the same heifer. The laws of value are abso- 
lutely universal. One man may get rich for the sake of 
making a display, and another man may get rich for the 
sake of doing good, but the getting rich is one and the same 
process forever. As John Bascom well says, — "Which- 
ever one of a thousand motives engages man in the pursuit 
of wealth, once in that pursuit, these all conform to one 
method, and acknowledge one law." Ethics constitute a 
great sphere, and persons are in it for certain great pur- 



FIELD OF THE SCIENCE. 115 

poses; the same persons are also in the Bphere of economics 
for other great purposes; the two spheres are co-ordinate 
with each other, not one in subordination to the other ; 
economics have to do with persons just as directly and con- 
stantly as ethics have to do with them ; and the golden rule 
is equally applicable to persons acting in cither sphere. The 
value of material things, the value of human efforts, and the 
value of incorporeal rights, — in short, every value is drier- 
mined only by two persons, acting face to face in direct 
reference to each other as 2 )ersons - Whatever others have 
done, therefore, or may hereafter undertake to do, we pro- 
pose solely to investigate the motives and the conditions that 
govern men in their exchanges. Such investigations have a 
definite field of view ; and if properly pursued, will lead to 
a statement of those laws that constitute the Science of 
Value. To these, then, we next proceed ; and first of all, 
to an analysis of Value itself. 

"We may summarize the principal propositions of this 
chapter as follows : — 

1. It is the first grand condition of a science that there be a 
circumscribed class of facts to start with. 

2. The second condition is, that these facts be open to the 
processes of Induction, Deduction, or both of them. 

3. Clearness of insight and conviction is a part of the proof 
of a correctly made generalization. 

4. There are three great classes of sciences, namely, the 
Exact, the Physical, and the Moral.* 

5. Economy is a Moral Science, and possesses all the con- 
ditions of a scientific growth. 

6. Induction, Deduction, Introspection, Feigned Cases, 
and liesults Measurable in numbers, are the tools with wh ich 
economists work. 

7. Economics are not to be confounded with Ethics, though 
their spheres lie alongside. 

8. Associated and not isolated men afford a chance for eco- 
nomical workings. 



116 POLITICAL ECONOMY, 

9. The structure of the physical earth is in harmony with 
the varied and social wants of men. 

10. Political Economy is the Science of Value, which is a 
definite relation between two things, though one somewhat 
hard to be caught and held. 



VALUE. 117 



CHAPTER III. 

VALUE. 

The preceding chapter has paved the way for this one. 
The field of the science is the field of Value ; and we have 
gained some little glimpse of that seemingly elusive thing, 
with which we shall be concerned from now on to the end. 
Though Value seem at first sight to be elusive, its shape 
becomes definite enough when firmly grasped, and it daily 
proves itself to be one of the most tremendous realities with 
which human life is confronted. The daily bread, the scale 
of comforts, the mental and moral progress, of every man 
and woman and child in the civilized world, hang almost 
wholly upon it. The mind is baffled by the bigness of the 
figures that express the aggregate of values in any one de- 
partment of industry even in a single country. The grain 
crops alone of the United States in the decade 1870-80 were 
valued at $10,000,000,000, of which corn was one-half, and 
wheat §3,500,000,000. To take a specific and local example 
of increase in a valuable product, — the little town of Min- 
neapolis in Minnesota, from a flour product of 30,000 barrels 
in 1860, rose in 1880 to 2,051,841 barrels. Now Value, in 
the definite and uniform sense in which it is used in econom- 
ics, is alwaj-s an expressed result; and the entire processes 
that lead up to this result are called Production, which will 
be the subject of the next chapter. Before we proceed to 
the elementary exposition of Value that follows, it should be 
said in the way of caution, that the word is sometimes 
in loose and unscientific senses, which we are carefully to 
avoid. For instance, men speak of the ' l value " of a good 



118 POLITICAL ECONOMY. 

example, in which sense it is equivalent to utility; and gram- 
marians speak of the " value " of a word or phrase, in which 
sense it means import or signification. Scientifically speak- 
ing, Value never comes into being until it is determined by 
an actual exchange ; and never resides, as utility may, in 
any one thing in and of itself ; still, no ambiguity or other 
ill consequence will arise, if, for the sake of shortened forms 
of expression, we sometimes use the word as if it meant 
expected or estimated value, or even use such an expression 
as this — Land has Value. Examples of this harmless but 
needful departure from a finical exactitude of science will 
come up as we go on. 

If I take up a new lead-pencil from my. table, for the pur- 
pose of examining all its qualities, I shall immediately per- 
ceive those which are visible and tangible. The pencil has 
length, a cylindrical form, a black color, is hard to the 
touch, is composed of wood and plumbago in certain rela- 
tions to each other, and has the quality, when sharpened at 
the end, of making black marks upon white paper. These 
qualities, and such as these, may be learned by a study of 
the pencil itself. But can I learn, by a study of the pencil 
itself, the value of the pencil ? Is value a quality ? By any 
examination of its mechanical, or by any analysis of its 
chemical properties, can I detect how much the pencil is 
worth ? No. The questioning of the senses, however mi- 
nute, the test of the laboratory, however delicate, applied 
to the pencil alone, can never determine how much it is 
worth. These methods will discover the qualities that be- 
long to the pencil as such, but I must take another method 
altogether to determine its value. 

Will the origin of the word Value help in finding a method 
by which I may discover the value of the pencil? The 
word is derived from the Latin verb valere, to pass for, to 
be worth. There is a hint of a comparison in the original 
meaning of the term itself. Will the current use of language 
assist me any further in finding out the way to learn the 



VALUE. 110 

value of my pencil? Iu current language, when the value 
of any thing is asked, the answer always comes in the terms 
of something else. We ask, How much is it worth? The 
answer is, So many cents or dollars. The cents or dollars 
are very different things from the things whose value we in- 
quire after ; and thus we see again more clearly that value 
implies a comparison of two distinct things ; and, if so, of 
course it is useless to try to ascertain its value by a study 
of the pencil alone. But what kind of a comparison between 
two things is needful, in order to ascertain the value of 
either? There is no use in laying down a certain number 
of cents by the side of the pencil for the purpose of fixing 
its value, as we lay down a carpenter's square by the side 
of a stick to ascertain its length ; because the cents have 
no common physical quality with the pencil, as the square 
and stick have in common the physical quality of length. 
A simple comparison determines the relative length of the 
square and the stick, and it makes no difference iu the result 
whose the square is, or whose the stick is. A borrowed 
square is just as good to determine length as any other, since 
that circumstance does not affect the terms of the compari- 
son : also, one man is competent to make the comparison, 
and it is not needful that he be the owner of either of the 
things compared. 

But is a man who does not own a thing competent to fix 
its value? And is a man who does own a thing competent 
to fix its value by himself alone? The true answer to these 
questions brings out two peculiarities of that comparison by 
which value must always be ascertained. Besides the two 
things compared, there must be always two persons com- 
paring, and each of these two persons must be virtually the 
owner of one of the things compared. Because I think my 
pencil is worth lift ecu cents, is it therefore worth fifteen 
cents? Somebody else must think so too before that fact can 
be announced. Also, the comparison that two thieves make 
between two pieces of stolen goods would not go far in pub- 



120 POLITICAL ECONOMY. 

lie estimation towards fixing the value of either piece of 
goods. Somebody, then, who owns the cents, must make a 
comparison with somebody else who owns the pencil, or the 
value of the latter is not likely to be truly ascertained. 

But besides such a comparison, essential as this is as 
towards the end in view, another step is needful before I can 
announce the value of the pencil. Not simply a comparison 
but an action also is necessary. I think it is worth fifteen 
cents ; an owner of cents, with whom the comparison is 
made, thinks so too ; is it therefore worth fifteen cents ? 
That is more than I can tell yet. I say to him, Will you 
take it and give me fifteen cents for it? He replies, I think 
it is worth it, but I am not ready to give that sum for it 
this morning. The value of the pencil is not yet deter- 
mined. In order to that, there must be an actual exchange 
of the pencil for the cents. There must be two things, two 
persons, a comparison, an actual exchange by which each 
person shall receive in fact or in ownership that previously 
held by the other, — each rendering something for the sake 
of the thing received, before the determinate value of any 
thing is possible to be stated. There may be expected 
value, estimated value, but actual value there is none, until 
a real exchange has settled how much the value is. The 
value of any thing is something else already exchanged for it. 
Value is not simply a relation subsisting between two things, 
but an actual fact established in connection with those two 
things. Quid pro quo is the universal formula of value. 
The pencil is not worth fifteen cents, because I have not yet 
succeeded in obtaining that sum in exchange for it. 

Not dealing in pencils, nor liking to chaffer, and finding 
it a little troublesome to discover what the value of the 
pencil is, I ask myself what its value was when I purchased 
it? That is an easy question. Two days ago I paid for it 
the sum of ten cents, United States money. It was the 
storekeeper and I. I owned the cents, and he owned the 
pencil. We compared these two pieces of property together, 



VALUE. 121 

and agreed to change ownership in them. I gave him the 
cents for the sake of the pencil, and he gave me the pencil 
for the sake of the cents. How much is my pencil worth? 
I do not know. How much was it worth two days ago? 
Ten cents exactly. 

If this preliminary view be just, it is clear that value is 
not in any true sense a quality residing in any one thing, 
but is a relation of mutual purchase established between 
two things. Nevertheless, it is often convenient to regard 
value as a quality inhering in a commodity or service. The 
convenience of such expressions as "the pencil has value," 
''gold has value," is so great, that science will not consent 
to forego the advantage of using them, even though they 
are not scientifically accurate. Science justly prefers to 
make her language intelligible and popular, even at the 
hazard of perpetuating a misapprehension. On such sub- 
jects as these, she is compelled in part to use language 
as she finds it ; but she is culpable if she does not fix 
at the outset with absolute distinctness the meaning of her 
terms, however popularly current, and then use the terms, 
always in the same sense, never confounding a term with 
other terms of a similar but not identical significance. In 
allowing, therefore, such expressions as "gold has value," 
we do not use the term in any other than its defined sense, 
nor imply that value is a simple quality, but employ short- 
ened forms of expression long consecrated by usage, and 
avoid circumlocutions sure to become tedious. So also, by 
using language that may imply that value exists before it 
is realized in an actual exchange, we do not admit that 
value exists independently of an exchange; men employ 
foresight, put forth exertion, practise abstinence, in refer- 
ence to a future realization of value : it is proper, at any 
rate it is necessary, to speak of them as already employed 
upon value, and of value itself as a purchaeing-jJOtoer resid- 
ing in this or that. A concession to the exigencies of lan- 
guage is not a departure from the exactness of science. It 



122 POLITICAL ECONOMY. 

is not, accordingly, true, speaking strictly, that value is a 
quality of gold in the sense in which weight is a quality of 
gold, because circumstances are easily conceivable, and have 
often occurred, under which gold would have no value at 
all. To the crew of a boat abandoned at sea, among whom 
the last biscuit had been rationed out, a bag of gold belong- 
ing to one of the men would not purchase a biscuit belonging 
to another. The inherent qualities of the gold are present. 
It is still hard and yellow and heavy. But valuable it is 
not. It will not purchase any thing. Value, therefore, is 
not an inherent and invariable attribute, but is the relative 
power which one thing has of purchasing other things. This 
power in any one thing will vary according to time and place 
and circumstances. It may cease altogether, as in the case 
just supposed, or it may rise under other circumstances to 
a very high degree ; but whenever it exists, it exists with 
reference to some other thing, which either is, or is supposed 
to be, exchanged with it. Ten cents had the power of pur- 
chasing my pencil, and my pencil had the power of purchas- 
ing ten cents. In this transaction the idea of value is 
developed. A similar transaction first introduced that idea 
into the world, and the endless succession and variety of 
such transactions have kept the idea in the world, and will 
keep it here till the end of time. Value, then, speaking 
strictly, is not an independent quality of the pencil, any 
more than it is an independent quality of the cents. Both 
are necessary in order that the value of either may be con- 
ceived of. The value of the cents is estimated, is measured 
by the pencil ; and the value of the pencil is estimated, is 
measured by the cents. In one word, value is always rela- 
tive, and never absolute. To say that any thing has an 
absolute value is a simple contradiction in terms. 

But why was I desirous to part with good United States 
money for the sake of the pencil, and the storekeeper to part 
with a good pencil for the sake of the money ? The answer 
to this question will ground the science of value on the un- 



VALUE. 123 

changing principles of human nature. I experienced a want 
which the pencil was adapted to satisfy. He experienced a 
want which the money was adapted to satisfy. But between 
my want and its satisfaction, both of which were persona] to 
me, there lay an effort, to be made either l>y myself or by 
somebody else in my behalf. So, between his want and its 
satisfaction, both of which were personal to him, there lav 
an effort, to be made either by himself or by Bomebody else 
in his behalf. If I had chosen to do so, I might have made 
the direct effort necessary in order to supply myself with a 
pencil. I might have made the pencil for myself. It would 
indeed have been a long and tedious process, would have 
required a learning of two or three trades, a journey to 
some plumbago-bed, the working and preparation of the 
mineral, and various other subordinate processes ; still, in 
the course of half a life-time it might perhaps have been 
done, and I might by direct efforts have supplied myself 
with a pencil as good as that which I purchased. So, too, 
the storekeeper, unless the laws had prevented it, might 
have procured for himself by direct efforts the metal cents 
which I gave him in exchange for the pencil. He might 
have dug the ores for himself, refined, alloyed, and minted 
them. Had we chosen respectively to take this course, and 
each been able to satisfy his own particular desire by his 
own unassisted efforts, the processes in either case would 
have had no relation to Political Economy. There would he 
in each case a want, an effort, a satisfaction, but there 
would be no exchange. As a matter of fact, however, we 
exchanged the efforts which lay between our respective de- 
sires and their respective satisfactions. I desired a pencil, 
he relieved me of the effort necessary to make it. and I 
experienced the satisfaction. He desired the cents, 1 re- 
tiered him of the effort necessary to procure them, and 
he again experienced the satisfaction. We each experi- 
enced our own desires, and our own satisfactions, but we 
exchanged efforts. Precisely in this exchange of efforts 



124 POLITICAL ECONOMY. 

arose the phenomenon of value. I parted with my cents, 
which had cost me an effort, in order to satisfy my desire 
for a pencil, because my effort, represented in the cents, 
was less than the effort it would cost me to create the 
pencil. The shopkeeper parted with the pencil, which had 
cost him an effort, in order to satisfy his desire for the 
cents, because his effort, represented in the pencil, was less 
than the effort which it would otherwise cost him to procure 
the cents. We exchanged efforts, therefore, for our mutual 
advantage. 

The principles of human nature, then, on which the laws 
of value are grounded, are these: Men have desires, are 
capable of making efforts to meet these desires, and expe- 
rience a satisfaction when the desires are met. These three 
are indisputable and universal facts. But while the desire 
and the satisfaction are strictly personal to one man, that 
is to say, belong to him and cannot be communicated to 
another, it is not so with efforts. Efforts are exchangeable. 
You have a desire, I make the effort to meet it, and you 
again experience the satisfaction. On the other hand, I 
have a desire, you make the effort to meet it, and I again 
have the satisfaction. "We exchange efforts, but experience 
our own satisfactions. Desires, efforts, satisfactions, con- 
stitute the one circle of Political Economy, and value arises 
| in every case from a comparison of two corresponding efforts. 
| Efforts arc naturally irksome. Everybody wishes to realize 
as large a satisfaction as possible from a given effort. If, 
by making that effort for another, a larger satisfaction will 
be realized than by expending it directly for one's self, there 
is an immediate and pressing motive to make the effort for 
another, and to reach the satisfaction, not directly, but indi- 
rectly, that is, by exchange. A precisely similar motive 
actuates that other person. If his given effort will realize 
more for himself by being put forth for the first man, and 
by accepting the first man's effort in return, he too will be 
anxious to exchange efforts with the first. There is a mutual 



VALUE. X26 

advantage in thus exchanging. A given effort realizes better 
satisfactions for each of the parties, and the reason for ex- 
changes is thus seen to spring from the most active and 
invariable principles of human nature. 

• The exchange of the cents for the pencil, and the pencil 
for the cents, is a simple case of value, but it is not the 
simplest. In this case there is an exchange of one com- 
modity for another commodity, the idea of value is instantly 
developed, and we say that the pencil is worth ten cents, or, 
what is exactly equivalent, ten cents are worth the pencil. 
There are two things in every exchange, — that which is 
parted with aud that which is received. Attention should 
be constantly directed to both. Many errors in science, aud 
numberless mistakes in legislation, have arisen from not 
attending to this circumstance, as if it were the glory of trade 
to sell rather than to buy, whereas it is not possible to sell 
without buying, because the pay must be taken for what is 
sold. In every exchange, therefore, of commodity for com- 
modity, the value of each is expressed in the other, and the 
relation between the two purchasing-powers is adjusted. 
This is the common case witnessed in the shops, on the 
street, and in the market-places. This is one case of value ; 
and there are, as we shall soon see, but five other possible 
cases, and each of these presents us, in principle, with 
nothing different from this. Sometimes, as in foreign com- 
merce, for example, when commodities are rendered, a credit- 
claim is taken in return, and this credit-claim is afterwards 
exchanged against another credit-claim, or against some 
personal service, or against other commodities, as the case 
may be. So in domestic trade, goods or labor are often sold 
on credit, as it is called, that is, against a claim to be real- 
ized in future, or are paid for in paper money, which i» 
itself a credit-claim, as well as sold against other goods or 
metallic money or personal service, in which case the trans- 
action is closed up at once. These surface-differences do 
not alter at all either the notion <>f value <t its laws. Each 



126 POLITICAL ECONOMY. 

repeated purchase and sale, no matter in which form, pre- 
sents us over and over again with the same phenomenon, 
namely, the equalization through exchange of two purchas- 
ing-powers. This is value, and is the sole subject of our 
science. 

The simplest case of value, however, will throw light upon 
ths more complex ones, and will be found to include them. 
Two farmers, who are neighbors, find, on talking over then- 
respective crops, that one has more hoeing and less haying 
this year than usual, and the other less hoeing and more 
haying. A says to B, " Come over and help me hoe in 
June, and I will go over and help you hay in July." B 
agrees. It is a mutual advantage. And so, to use the old 
expression, which is better here than any scientific terms could 
be, they change works. B does a service for A, and A does 
a service for B. The two services balance each other. 
They are mutually exchanged one for the other ; and in the 
very proposal thus to exchange them the notion of value is 
conceived, and in the exchange itself value is both pro- 
duced and measured. B's help in hoeing is worth A's help 
in haying. 

This exchange of one service for another service presents 
the simplest case of value ; and we now proceed to show that 
it essentially includes all other cases. If it can be shown 
that value is always and everywhere the same thing, that it 
is always and everywhere the relation of mutual pur- 
chase ESTABLISHED BETWEEN TWO SERVICES BY THEIR EX- 
CHANGE, Political Economy will be seen to possess one grand 
characteristic of the great sciences, namely, simplicity. 
This can be shown. 

Induction has been busy more or less for more than two 
thousand years in trying to gain a complete classification of 
Values, and thus to reach a complete definition of Property. 
Of course the attention of men was first drawn in the way 
of buying and selling to tangible things, and the balance 
was very early used to equalize the things exchanged ac- 



VALUE. 127 

cording to an estimation mutually agreed on by the two par- 
ties. Thus " Abraham weighed to Ephron the silver he had 
named in the audience of the sons of Ileth " as a return for 
the land received by him " for a possession." Thus the 
early Romans called buying and selling manapium, — taken 
by the hand, — because that formality was required in the 
transfer of certain things. When land was sold, a" turf was 
sometimes cut from it and passed over into the hand of the 
purchaser in token of the sale. The balance was much used 
in all sales — per ces et libram — even in imaginary sales, as 
when a father manumitted a son. But society has never 
advanced far in any country, before it has been observed by 
somebody that intangible things are bought and sold also. 
Even if Aristotle did not perceive that personal services or 
labor are a part of property, the author of the Eryxias 
stated that dearly ; and even if the Greeks did not see that 
abstract rights are property, the Roman lawyers announced 
it in the clearest terms. Keen eyes among the moderns have 
watched for some other species of property than these three, 
and have not found it. The Induction is completed for all 
time. The particulars have all been generalized, and not 
one outlying case is left. Property, as including these three 
kinds, has been neatly defined by Ulpian, and the definition 
can never be improved. 

"We have, then, but six possible cases of value, since there 
are only three kinds of things that are ever exchanged for 
the sake of each other. These are : — 

1. A commodity for a commodity, as the pencil for the 
cents. 

2. A commodity for a service, as a gold eagle for a law- 
yer's advice. 

3. A commodity for a claim, as a Howard watch for a 
railroad bond. 

4. A service for a service, as the above case of two fanners. 

5. A service for a claim, as a year's work for a bond of 
the United States. 



128 POLITICAL ECONOMY. 

6. A claim for a claim, as a U. S. bond for railroad 
bonds. 1 

Blackstone quoted with approval from the Eoman civil- 
ians the four valuable considerations in cases of contract 
which the Romans seem to have clearly and constantly 
recognized. This list is quite incomplete, even when com- 
pared with principles elsewhere clearly recognized in the 
civil law itself; for Ulpian says, " We are accustomed to 
buy and sell Debts payable at a certain event and on a certain 
day;" and again he says, " Under the term Property both 
Bights of Action and Bights are included." We will now 
give the list as Blackstone gives it, and then give the sls 
formulas that will correct and complete it. 

1. Do ut des . . . . Commodity for commodity. 

2. Facio ut facias . . Work against work. 

3. Facio ut des . . . Work for a commodity. 

4. Do ut facias . . . Commodity for work. 

A full statement of possible valuable considerations is the 
following : — 

1. Do ut des . . My commodity against yours. 

2. Do ut facias . . My commodity for your work. 

3. Do ut promittas . My commodity for your promise, 

4. Facio ut facias . . My service against yours. 

5. Facio ut promittas . My service for your promise. 

6. Promitto ut promittas . My promise against yours. 

Now what is mutually transferred in all these cases, is the 
ownership or property in something. The Latin word pro- 
prietas, from which our word property comes, means both 
etymologically and legally what is exclusively one's own. 
What is exclusively one's own may be rightfully sold, pro- 
vided the consideration be sufficient, and may thus become 

1 Compare the Civil Law, Fr. 19, §5, 5; Blackstone's Commentaries, 
Book ii. 444 ; and Macleod's Banking, page 9 et seq. 



VALUE. 129 

exclusively another's. Material products may or may not 
be passed over to the purchaser at the time of the sale, but 
the ownership goes over to him in all cases. Personal ser- 
vices, unlike material products, are not commonly resalable 
by the purchaser ; sometimes they are, as when one hires 
out for a time his own hired man. Most species of incor- 
poreal property are transferable at will, as bank cheques, 
patent-rights, and promissory notes. But this transfer <»f 
ownership, a feature in all cases of value, though less obvi- 
ously so when simple services are rendered, does not present 
the best aspect for the complete understanding of value. 
That aspect is presented through the term services. 

It is mutual services, as well as mutual ownership, that 
are exchanged in these six cases ; and the word services 
carries us deeper into the central phenomena of value. 
Thus the client, with live dollars in his pocket, is jusl as 
much in position to do the lawyer a service, as the lawyer is 
in position to do him a service. The counsel is serviceable 
to the client, and the dollars are serviceable to the lawyer, 
and so they exchange. And just so when commodities are 
exchanged with each other. The hatter serves you with a 
hat, and the shoemaker with a pair of boots, and you serve 
them with six dollars each; or if the hatter be in want <>f 
boots, and the shoemaker of a hat, they serve each other 
with their respective products. In every ease of value, 
therefore, without exception, what is really exchanged, 
whether a commodity intervene or not, are mutual services; 
and value is then produced, and only then, when two per- 
sons are in position to render each other a service ; and the 
respective services being rendered, that is exchanged, and 
the balance being struck, we have the value of one ex- 
pressed in the other. 

If this view of 'the matter be correct, the definition <»f 
Value that has just been given must be correct also. This 
analysis of value brings us directly to /» rsons a- the central 
point of the science, and makes outward tilings, though Btill 



130 POLITICAL ECONOMY. 

of vast importance in their relations to persons, entirely sub- 
ordinate to the desires and estimates of the persons them- 
selves. Even in the exchange of tangible things, which we 
have called commodities, the wants and tasks of persons are 
the chief element in the transaction ; the character and skill 
of persons as such become still more prominent in the ex- 
change of what we have called personal services or labor ; 
and in the sphere of claims or credits, which always relate 
to future time, almost every thing hinges on the character of 
persons through the confidence they are able to inspire. As 
we have been obliged to use the term "things" in two 
senses, the specific sense as opposed to persons and the gen- 
eral sense as including whatever is exchanged, so we have 
been obliged to use the term " services" in two senses, in 
the specific sense as personal services or labor, and in the 
broad sense as rendering any thing for which something is de- 
manded in return. No confusion will arise from these ambi- 
guities, for the context will always show in which sense the 
terms are used. Also, people sometimes do for others what 
are called services, out of sympathy, from benevolence, 
from duty ; but the characteristic of these is that they are 
free ; nothing is demanded in return. These, therefore, fall 
in the sphere of ethics, and are outside the pale of Political 
Economy. There is no such thing as exchange proper within 
the field of ethics, and there is nothing else but exchange 
proper within the field of economy. This principle alone 
marks the boundary-line between the sciences referred to. 
A service, then, in the language of this science, and as the 
word will henceforward be used in these pages, is any thing 
rendered to another in view of a return, and for the sake of 
a return. The man who furnishes you a barrel of apples, 
does you, in this sense, a service equally with the plrysician 
who attends upon your fever; and you "pay them both on 
precisely the same principles. You render to each an equiv- 
alent service in return. To pay them money is to render 
them a service, just as to furnish you apples and medical 



VALUE. 131 

advice were a service to you. Whether a commodity, as 
apples, intervene or not, is, as far as value is concerned, a 
matter of indifference. The more specific use of the term 
" service," as opposed to a commodity, is indeed convenient, 
and 'will, doubtless, continue to be used: the broader Bense 
is exceedingly useful, and, by its aid, we clear up the whole 
subject of value. 

This ultimate definition .of Value, namely, that it is tiie 

RELATION OF MUTUAL PURCHASE ESTABLISHED BETWEEN TWO 

services, is somewhat like the definition of the physiocrats, 
still more like the definition of Bastiat, and yet it is different 
from them both. The physiocrats said, that " value con- 
sists in the relation of one thing exchanged for another." 
Two things are to be said about this : first, as the physio- 
crats admitted only one kind of property, — richesse, — and 
consequently only one kind of exchange, that of material 
products, their definition is too narrow, — their word 
"thing" meant only a physical thing exchanged; and sec- 
ond, there is an indefiuiteness about the relation itself as 
expressed by them, — the kind of relation is not clearly 
given. Bastiat's definition, — " the relation of two services 
exchanged," — escapes the first fault by means of the word 
" services," but does not escape the second fault. Our defi- 
nition steers clear of both ; and as an elephant tests the 
bridge, first by one foot and then by another, and then by 
all his weight, so we are willing that this definition should 
be tested by all economists, however cautious. 

The definition of a general and abstract term like Value 
ought certainly to be both general and abstract. In this 
point of view, Macleod's definition, however excellent in 
most other respects, seems to us to be defective. He - 
11 TJie value of any economic quantity is any other economic 
quantity for tohiclfit can be exchanged." Yes ; but this does 
not answer the question, What is Value? It answers the 
question, What is the value of any specific valuable thing? 
We have already confessed also our dissatisfaction with 



132 POLITICAL ECONOMY. 

Macleod's use of the word "quantity " in this connection. 
He is indeed perfectly right in claiming that every valuable 
thing whatsoever can be measured in money, and we saw 
before that this is a great advantage in all economical rea- 
soning ; but in applying the term ' ' quantity ' ' with all its 
concrete associations to each economic rendering of the 
three kinds, he runs a risk, which is still more plainly seen 
in Jevons, of leading men's minds back to the concrete 
notions of the first and second schools. Jevons says : " To 
one it seems that our science must be mathematical, simply be- 
cause it deals with quantities. Wherever the things treated 
are capable of being more or less in magnitude, there the laws 
and relations must be mathematical in nature. The ordinary 
laws of supply and demand treat entirely of quantities of 
Commodity demanded or supplied, and express the mode in 
which the quantities vary in connection with the price." To 
most persons, if not to all persons, a " quantity " means a 
mass or mess of something. Is not "services" a better 
term than ' ' quantities ' ' ? May it not be better said of ser- 
vices than of quantities that they are measurable by money ? 
"When Siddons acts, and Mehlig plays, and Kellogg sings, in 
public, is not their respective economic rendering rather a 
service than a quantity? If A with the toothache pays the 
dentist B $5 for pulling out the tooth, A's money seems to 
us a measure of B's service, and of nothing else. We have 
now tracked the lion of Value to his very lair. We have 
leached a definition that seems adequate and complete. But 
for the sake of further illustration and still clearer light on a 
central point that has long lain in fog, it is well worth our 
while to go on with the discussion, and to enumerate at 
length some of the reasons why we may feel entirely satisfied 
with our final definition. 

1. In the first place, this definition covers naturally and 
easily all those anomalous cases of value which have been so 
hard to reduce under any other general view. Take for in- 
stance those rare cases of the accidental finding of things, 



VALUE. 103 

like a large diamond or a nugget of gold, which proved 
afterwards to have great value. The second Bchool, and 
more especially McCulloch, claim that labor is the source of 
value, and that the purchasing-power of all things is propor- 
tioned to the labor which they have cost. This statement 
has a good deal of truth in it in relation to certain thin 
certain times and places, but it will not do at all as a gener- 
alization. There are many cases that it does not cover. 
Indeed, mere effort, mere work, in itself considered, has no 
tendency whatever to create value. Much effort, much work, 
as b} T a dull but laborious writer of a book, may issue in very 
little value. Little effort, little work, as by a skilful pleader 
in the courts, may issue in very great value. Labor is not 
so much a cause of the value expected to accrue as it is the 
result of the value expected to accrue. Whately puts this 
just right when he says : " In this, as in so many other 
points in Political Economy, men are prone to confound 
cause and effect. It is not that pearls fetch a high price 
because men have dived for them ; but, on the contrary 7 , men 
dive for them because they fetch a high price." In other 
words, value always has its starting-place in l)i>n:i;s; and 
although Effokt of some sort and in some degree is always 
associated with desire in the realization of value, yet the 
effort alone is never the cause of the value, nor can the 
value always he said to be proportioned to the effort. 

We can reason well from feigned cases, provided only 
they be cases liable to happen : let us suppose a ease that 
has probably often happened in fact. A miner chances in 
his work to find a gold nugget of extraordinary size ; it is 
but a moment's labor to appropriate the prize; but then, 
such as it was, the labor was his own; he is now the un- 
doubted proprietor of the nugget: he must preserve and 
defend it until the opportunity come to sell it; he must take 
it to the buyer whoever and wherever he maybe; and <l"cs 
he sell it for one shilling less on account of the little labor 
of appropriating it? No. He is now in position to do a 



134 POLITICAL ECONOMY. 

great service to anybody wanting gold. He demands a large 
service in return, and gets it. Gold bears a market-rate by 
the pennyweight, and whoever offers it in any quantity may 
expect to receive that rate. It would be poor mercantile 
logic for the buyer to say to the seller: I hear that you 
found that nugget by accident, and as it cost you but a f e w 
minutes' labor to secure it, I am ready therefore to give you 
for it a fair valuation of your time expended. He rather 
reasons in this way : Here are 100 pennyweights of crude 
gold, equivalent to 70 pennyweights of coin gold ; this 
miner knows in a general way the market-rate of gold of 
this degree of fineness ; I cannot get it elsewhere for less ; 
and, therefore, I am glad to give him his price. The value 
is not determined in this case by the labor expended, but it 
is determined by the service rendered ; and this principle 
governs all cases of this sort, however unique. A diamond 
larger than usual found in Golconda, in Brazil, in South 
Africa, is, as a rule, sold in accordance with the same prin- 
ciples as other things ; a finder indeed may sometimes not 
know what it is that he has found, as the Swiss soldier who 
picked up the Sanci diamond on the battle-field of Nancy 
from the hat of Charles the Bold and sold it to a clergyman 
for a gulden ; on the other hand, the slaves in Brazil are 
stimulated to knowledge and diligence by the rule, that 
when a diamond- of 1 7 carats is found he who finds it is en- 
titled to his liberty ; but on the whole it is remarkable that 
there are so few fortunate accidents in the world of values 
anywhere, labor for labor is the almost universal circum- 
stance, and when the anomalous case arises now and then 
it comes with all other cases under the absolutely universal 
formula Service for Service. If the seller of any thing 
at any time pitches his demand too high, that is, at a point 
beyond which the bu3'er can get himself served by another 
or prefers to go without the thing, the first must lower his 
terms or not trade ; and the second can only crowd down 
the first to the point at which he can find another purchaser 



VALUE. 135 

or prefers to retain possession himself. The comparison 
and adjustment of these two services, that of the first to the 
second and that of the second to the first, fixes for that sale 
the value of each service. 

Here we must tarry a moment in passing to note what an 
exceedingly good word the English language furnishes us 
with in this term " Service." It combines in its own proper 
meaning all the elements which make up and which vary 
value. First, it implies always two persons, the person ren- 
dering and the person receiving the service. Next, il always 
implies some effort on the part of the person rendering, and 
some satisfaction on the part of the person receiving the 
service. Thus when one service is spoken of there are 
always implied two persons and two things, and the two 
things are the effort of one person and the satisfaction of 
another. But when two services are spoken of as ex- 
changed, as is always the case in Political Economy, there 
are implied, as before, two persons, each of whom makes 
an effort for the other, each of whom is recipient of a satis- 
faction which comes from the effort of the other, and each 
of whom estimates in the light of his own satisfaction that 
which is received as compared with that which is rendered. 
It is this reciprocal estimation alone that constitutes value ; 
and it is the excellence, we may almost say the glory, of the 
term Service, that it gathers up in its own signification all 
the elements which go to determine value, and which ever 
vary its amount. 

As here is the very core of our science, a little farther 
illustration at this point may at least be pardoned, and per- 
haps will be well bestowed. Let the parties be A and B, 
in position to render each other a mutual service. A has a 
desire which B's effort can meet, and B has a desire which 
A's effort can meet. Up to the point when the exchange 
takes place there are only four elements that play any part 
in the transaction as preparatory t<> it. namely, two desires 
and two efforts. In the act of exchange itself two oilier 



136 POLITICAL ECONOMY. 

elements come into being, namely, two relative estimates, 
A's estimate of B's effort for Mm as compared with his own 
effort for B, and B's estimate of A's effort for him as com- 
pared with his own effort for A. As a result of the ex- 
change, and as that for the sake of which the whole series 
took place, there appear two other elements, namely, two 
satisfactions. Here is the whole of it. Now, then, any 
change in any one of the first four elements will vary value ; 
and there is nothing else in the world that can vary it. If 
A's desire for that which B is ready to render be lessened, 
the other elements remaining the same, A's estimate of B's 
effort as compared with his own is lessened, and value is at 
once affected. If A's desire be increased, other things being 
equal, his estimate of B's service as compared with his own 
is increased, and value is affected. Just so any diminution 
or enhancement of B's desire for that which A is ready to 
render, acts at once upon B's estimate of A's effort as com- 
pared with his own, and consequently acts at once upon 
value. Again, any change in either effort as compared with 
the other, such as its becoming more or less onerous than 
the other, will of course affect the estimate, of the one as 
measured by the other, and of course also will vary value. 
These first four elements then are not only the elements out 
of which value subsequently springs, but also are the ele- 
ments any change in any one of which, the others remaining 
the same, will tend to vary value, and without a change in 
some one of which, relatively to the others, value never will 
be varied. The term services expresses just these elements 
which play and vary as preparatory to the realization of 
value. Value itself is realized from the adjustment of the 
fifth and sixth elements, that is to say, from the equalization 
of A's estimate of B's service with B's estimate of A's 
service. This adjustment also, together with the remaining 
elements, the two satisfactions, are all implied in the ex- 
pression mutual services, or, if you please, two services 
exchanged. 



VALUE. 187 

If any reader objects to this paragraph as abstract, the 
reply is, it is no more abstnu-t than the subject-matter is 
with which we are dealing ; and if any one finds difficulty in 
the relative nature of the transaction unfolded, it can only 
be said, that Economy starts with a relation and has to do 
With a relation every step of the way to the end. This is the 
one intrinsic, unavoidable difficulty that lies at the threshold 
of the science; and whoever, by taking pains at the outset, 
familiarizes this difficulty to his thoughts, and thus over- 
masters it, will walk thenceforward with positive pleasure 
throughout the whole economic domain. If there ever was 
a science grateful for a word, as lessening its inherent diffi- 
culties and helping explain its phenomena, Political Econ- 
omy, which has wandered more than twice forty years in the. 
wilderness of "AVealth," thankfully accepts in the term 
11 Service " its latest and most important gift. 

2. In the second place, the definition of Value here given 
expands the field of economics to its full and natural limits. 
Even Adam Smith, and the English economists generally, 
while really considering " wealth " as consisting of material 
commodities only, have experienced a difficulty in excluding 
from the domain of the science certain immaterial services, 
and in denying value to those services. Some have tried to 
avoid this difficulty in one way and some in another. Some 
have called those who render a mere service to society 
"unproductive laborers," and have gifted with the title of 
'•productive laborers" all those who bring forward some 
vendible commodity. Stuart Mill was inclined to enlarge his 
terms so as to take in all those sorts of mere services whose 
action goes to swell the volume of material commodities. Be 
would allow, that persons employed in a factory to tench the 
operatives knowledge needful to the doing <>f their daily tasks 
were productive laborers; while ordinary school teachers, as 
such, he put altogether outside the realm of economics. It 
is conceded then that value may reside in BOTH* Ben 
and why not then in all services put forth for the sake of I 



138 POLITICAL ECONOMY. 

return? "Why allow value to a service that may come to be 
indirectly embodied in a commodity, and deny the term to 
another service just as necessary to our comfort and just as 
much purchased that is not thus embodied ? Why class the 
brick-maker and the hod-carrier as productive laborers, and 
deny the epithet to the bishop, whose residence they are at 
work upon, and whose salary as a clergyman pays their 
wages? The truth is, there is no ground for this distinction ; 
aud the very difficulty which the various writers have found 
in trying to make it, is a pretty sure proof that it ought not 
to be made at all. By putting its definitions so that value 
can only be supposed to dwell in tangible commodities, 
Economy excludes itself, without any good reason, from the 
largest and best portion of its own field. 

Let us now see if there be any good reason for this nar- 
rowness. An example here is better than a syllogism. A 
man buys a spelling-book for his boy, for the sake of his 
learning to read. He then hires a teacher to teach him to 
read. According to the usual definitions the spelling-book 
has value, while the service of the teacher has none. But 
why has it none? It has to be paid for, certainly, as much 
as the spelling-book has to be paid for. There are two sepa- 
rate exchanges ; first, of money for the spelling-book, and 
second, of money for the service. Both are made with the 
same object in view, namely, that the boy may learn to read. 
The want of a spelling-book and the want of a teacher are 
the two external obstacles in the way of reaching that object ; 
and the father overcomes them both by similar means, that 
is to say, by an exchange ; and there is no such difference 
in the two transactions as will justify or even tolerate the 
distinction sought to be made between them. The teacher 
sells his service. The shopkeeper sells his book. The 
father renders a service to each equivalent to that received 
from each. Political Economy now claims jurisdiction over 
both transactions alike, and affirms value as truly of the 
service as of the commodity, and more truly of the service 



value. L39 

than of the commodity, inasmuch as it stands ready to prove 
that so far as value resides in any commodity it resides there 

simply in virtue of the human services which have been con- 
cerned in it and in that for which it is exchanged. What is 
ultimate, therefore, in all exchange, is services and not com- 
modities; and the services which are bought and sold in 
every department of life, the services, for example, of the 
lawyer, the physician, the clergyman, the teacher, the editor, 
the musician, fall as much within the province of Political 
Economy as the traffic of commodities in the market-place. 
Our science asserts its claim of jurisdiction wherever services 
are mutually exchanged. 

3. A third advantage of the definition of Value now given, 
and one closely connected with the last, will be seen in the 
fact that it helps free the discussion from a perplexing error 
which has long infected this class of inquiries, namely, that 
value is somehow or other connected with matter. This 
notion has controlled most of the definitions and develop- 
ments of the science hitherto ; has led, as we have just seen. 
to groundless distinctions between personal services ; and 
has taken possession of language so thoroughly that no judi- 
cious writer will attempt at this late day to dislodge it from 
that strongest of all citadels. Ivather than disturb the cur- 
rent nomenclature of life and business, the wise economist 
will allow such expressions as these to stand : Gold has value, 
strawberries have value. But it is very easy to show and 
very important to see that value does not reside in matter, 
or in any form of matter, but only in human services 
exchanged; and that, therefore, Value is never of I 
creation, but always of men's exertion. For example, the 
physical thing, Land, and the physical thing, Silver, have 
been wrought by God; but the value of the land, and the 
value of the silver, are matters brought about by living men. 
The distinction between a certain thing as existing, and even 
as existing in a certain form, and the same tiling as valuable, 
is a vital distinction in economics. Moreoi er. the distinction 



140 POLITICAL ECONOMY. 

between the utility of something, that is, its capacity to 
gratify some human desire, and the value of that same thing, 
that is, its power to purchase something else, is another 
vital distinction in economics, as we shall fully see shortly. 
No effort of men can add one particle to the existing matter 
of the globe, but it has been supposed that the efforts of 
men, by changing the form of existing matter, impart the 
quality of value to it, and that thenceforth the value remains 
fixed in the matter itself. The efforts of a woodman, for 
example, with the co-operation of nature, can transform the 
stock of a tree into wooden bowls, and value is now supposed 
to reside in the vendible bowls, and the current language is, 
that each bowl has a value of fifty cents. Why has it a 
value of fifty cents ? Clearly enough, to reward his service 
who felled the tree, and sawed the block, and then hollowed 
out the bowl. 'But the service having been employed upon 
the matter, and being embodied in it, is not what is really 
sold now the matter, and not the service? We answer, No. 
What is really sold is the service, and not the matter. And 
this, which at first sight might not be thought important, but 
which is really very important, becomes apparent as soon as 
we reflect that any changes in the conditions of the service 
instantly affect the value. Our woodman has on hand a 
stock of one hundred bowls, which he offers for sale at fifty 
cents apiece, as fairly rewarding his personal services in their 
production. But, unknown to him, an enterprising neighbor 
has invented a machine which enables him to make bowls in 
every respect equal to the others, and to offer them at twen- 
ty-five cents apiece. Whoever now wants a wooden bowl 
can have that service rendered him for twenty-five cents 
return. The first man finds that he cannot sell a bowl for 
over twenty-five cents, and that his stock of one hundred 
has sunk at once in value from fifty dollars to twenty-five 
dollars. What is the matter with his bowls? The matter 
is not in the matter. The matter is all there, and the form 
of the matter is all there, but the value is just one-half 



VALUE. 141 

escaped, because the service Which he can render to a buyer 

by a bowl has been, by the enterprise of his neighbor, just 
one-half lessened. Value then follows the fortunes of ser- 
vices, ami varies as they vary, just as much when they have 
beeu employed upon commodities, as when they are inde- 
pendent of them, and we see that the value resides in services 
compared, and not in matter at all. To render and receive 
services are a fuuetion of persons, and the qualities of matter 
are subordinate to that. 

We now proceed to indicate the manner in which language 
came to be used in such a way as gives color to the notion 
that value resides iu the commodities rather than in the ser- 
vices. An instance will bring the whole subject before us 
clearly. In many parts of the United States delicious wild 
strawberries may be had in their season for the simple luck- 
ing. The pastures and meadows are open to every comer, 
and the strawberries are considered to belong, not to the 
owners of the fields, but to any one who takes the labor of 
picking the fruit. Let us suppose that my family are fond 
of the berries, and that no member of it likes to undergo 
the labor of picking them, and that I hire some girl, who 
offers her services for the purpose, to go to the fields and 
gather some of the fruit for us. When she returns J pay 
her for her service. She does not conceive of any value 
residing in the strawberries themselves. Neither do I. She 
makes a series of efforts for the gratification of my family., 
and is paid for her efforts. Language recognizes the true 
state of the case, and she does not say now that she sell* us 
the berries, and we do not speak of buying the berries of 
her. She thinks only of her service, we think only of her 
service, she is paid only for her service: language is exact 
in the premises. The next day, as the gill is about t<> go 
for us again, my neighbor says to her, "You bring ne as 
many, and 1 will pay you as much." The third -lay. I 
ond neighbor makes a similar bargain with her, and she 
brings strawberries for the three families, and is paid in 



142 POLITICAL ECONOMY. 

each case for her service. The girl, on the fourth day, 
taking it for granted that we shall be likely to want straw- 
berries that day also, does not wait to be sent, makes no 
bargain for her services beforehand, but goes and gathers 
the fruit. This time there is a chaDge of language when 
she comes to my door. She now offers to sell me straw- 
berries. " How much are they worth? " I ask. She names 
probably the same sum which she had before received for 
the service of picking the same quantity. She could not 
materially increase it, because there are doubtless other 
girls who are ready to render the service which she before 
rendered, at the same rate. But attention is now drawn 
away from the service to the berries, and the idea of value 
is attached to the berries, and language adopts the illusion, 
and says, " the berries are worth so much." Who does not 
see, however, that the transaction is substantially the same 
as before ? Who does not see that it is only by a figure of 
speech, convenient indeed, but still only a figure, that the 
berries are now said to have value ? If there be no differ- 
ence in the last case as compared with the former cases in 
the two desires and in the two efforts, it is plain to reason 
that there can be no difference in the value, and conse- 
quently no difference in that which is really sold. But my 
desire for the berries, my effort as represented in the price 
paid, her desire for the money, and her effort as represented 
in the picking, are all just as before. She expected me to 
take them, 'and I took them as before. The value, there- 
fore, the purchasing-power, resides not in the berries, but 
in the service ; that is to say, in that which she renders as 
compared with that she receives ; and it is only a freak of 
language which leads us to suppose otherwise. 

This is but a simple instance, but the principles of the 
instance are applicable to all commodities whatsoever. It is 
only mediately and figuratively that commodities can be said 
to have value at all ; and if we use the common language, 
and say that they have value, we must always rcinembci 



VALUE. 148 

that they have it simply and solely iu consequence of the 
human services which have been employed upon them, as 

related to those other human services for which they may be 
exchanged. If this be true, and it seems to us certain that 
it in true, it throws a flood of light upon the whole field of 
value. More attention must be given hereafter, in Political 
Economy, to persons, and less to things. Man and his 
wants, man and his efforts, become at once the chief topics, 
while the material products on which efforts are employed, 
and which minister to wants, sink in relative position. It 
follows also from this distinction, that there is not so much 
difference as is commonly supposed, when a man work 
others, and when he sets up for himself, — between a jour- 
neyman and a master. The journeyman sells his services, 
and the master sells nothing more or other than his own ser- 
vices. The services of the master may not be manual, they 
may be merely supervisory, or they may be connected with 
the use of his capital; but the finished product, when it is 
ready for the consumer, represents the aggregate of the 
human services which have been employed upon it. and who- 
ever sells it, sells those services, and its ultimate value is 
determined, as all other value is, by a double comparison, 
the purchaser's comparison of the service of the product to 
him with that which he renders, and the seller's comparison 
of the service he receives with that of the product. Service 
for service, in the last analysis, rather than commodity fof 
commodity, is the rule of value and the law of exchan 

4. In the fourth place, a principal merit of the definition of 
value insisted on in this chapter is the easier discrimination 
which it allows between Value and Utility. It is absolutely 
essential to our progress in economies thai we keep distinct 
in our minds the two ideas underlying these two W< 
Whole discussions in Adam Smith are marred by his ool con- 
sistently attending to the distinction, which he himself .haws 
in one place, between " value in use and value in exchao 
meaning by the former expression simple utility. Say mixe* 



144 POLITICAL ECONOMY. 

up the two ideas even more completely than Adam Smith 
does ; and the errors of the two writers in this respect gave 
rise to the twentieth chapter of Mr. Ricardo's book, 1 in 
which the difference between utility and value is pretty 
clearly unfolded. Mr. McCulloch, too, always insists upon 
this difference, and correctly maintains that the distinguish- 
ing characteristic of utility is, that it is gratuitous ; although 
the theory of value of each of these writers is too narrow, 
unduly restricting the field of Political Economy by assum- 
ing that value rigidly inheres in commodities only. The ex- 
ample of these writers shows that the distinction referred to 
can be made even under their definition of value, but it is 
not so easily and practically made as under the true defini- 
tion, because in the true definition attention is inevitably 
drawn to two persons, instead of to one thing, and utility, 
which is simple capacity to gratify any desire, is neatly dis- 
criminated, even in the nomenclature itself, from the mutual 
efforts by which the mutual desires are met. The word Ser- 
vice enables us to draw the distinction, and to hold it fast. 

Utility, then, is the capacity which any thing or any service 
has to gratify any human desire whatsoever. Political 
Economy has nothing to do with the estimation in which 
different desires are held by a philosopher or a moralist. It 
is enough to constitute for it utility, if any thing will meet 
anybody's desire or serve anybody's purpose. In this sense, 
which is the etymological and only just sense of the word, 
ardent spirits have utility just as wheat has utility. The 
same thing may have no utility for one man, a low utility 
for another, and a very high utility for a third ; since the 
first has no desire for it, the second a feeble, and the third a 
strong desire for it. Desires are personal to individuals. 
There is no common standard with which they may be com- 
pared. They are not exchangeable. Utility is the capacity 
which any thing has of meeting any one of these desires 
at any time or in any place. But some things have this 
1 Principles of Political Economy and Taxation. 



VALUE. 1 15 

capacity in a high degree which are never exchanged, which 
are uever bought or sold, and which consequently can have 
no value. The air we breathe, the light in which we recreate 
ourselves, the water we drink from the spring or brook, all 
have the highest utility, but no value. They connect them- 
selves with no service. We give nothing for them. They, 
and such as they, are the direct gifts of God. They are 
gratuitous. 

But utility is always present in all value also, since it is 
an element in all service ; and the utility that appears in 
connection with value is always derived partly from Nature 
and parti}' from man. It is impossible to say, in any given 
case, how much is attributable to Nature and how much is 
attributable to man. It might seem at first sight, as if, in 
the case of the diamond, or in the case of the strawberries. 
the utility were wholly the gift of Nature, but the diamond 
undiscovered among the pebbles, and the strawberries un- 
picked upon the meadows, can hardly be said to have utility, 
much less value. The human sen-ice that tits each of these 
to meet a present desire is an essential contributor to their 
utility. On the other hand it might seem as if the utility of 
a painting were wholly referable to the art of the painter; 
but the tenacity of the canvas, the flexibility of the brush, 
and the brilliancy of the colors, are the contribution of 
Nature. Although, therefore all utility that ever appears 
in connection with value is partly due to the efforts of men. 
it is none the less essential to clear thinking iu this depart- 
ment to separate distinctly in the mind the utility from the 
value. The utility of a service may be great and its value 
little ; the utility of a service may be great and its value also 
great. They are distinct things. They become, as it were, 
Commingled in the service rendered, but the utility i 
thing, and the value a distinct thing. Utility is ultimate, 
value is mediate. Utility IS absolute with reference to the 
individual: value is always relative. 

The utility involved in every valuable service is derived 



146 POLITICAL ECONOMY. 

from two sources, — the free contribution of Nature, and 
the onerous contribution of man ; but the value of such ser- 
vices in general tends perpetually to become proportionate 
to the onerous human contribution, and not to the aggregate 
utility. If the service be unique, if only one person or a 
few be in a position to render it, no useful principle can be 
laid down, which shall discriminate the two components of 
the utility ; but in respect to the vast mass of services, of 
which a market rate can be predicated, it is very clear that 
the competition with each other of those who are ready to 
render them, will fix the current value at a point which shall 
just about compensate for the onerous elements involved. 
That portion of the utility which is the free gift of Nature 
will be very nearly a common factor in that whole set of ser- 
vices. The action of competition will eliminate this com- 
mon factor, and tend constantly to determine value on the 
basis merely of what man has done to impart utility to those 
services. Thus, if ten men bring ten horses to the market 
to exchange against money, though the utility of the horses 
be derived in large degree from the gifts of Nature, yet 
there are some of the owners who will be willing to part 
with their property at a price that will compensate them for 
what they themselves have contributed towards that utility. 
The action of these will tend to fix the price of the whole 
ten. There is no tendency in value, then, to proportion it- 
self to the aggregate utility of a service, but there is a ten- 
dency in value to proportion itself to the aggregate of the 
onerous human efforts represented in a service. 

Utility and Value, then, are distinct things ; even the 
physiocrats recognized this in their well-known distinction 
between Mens and richesse; some things, as air, have a high 
utility and no value, and other things, as strawberries, may 
have a high utility and a low value, and still other things, as 
a portrait, have a high utility and a high value also ; because 
the strawberry girl cannot charge for all that has been done 
for the fruit in the wonderful laboratory of Nature, since 



VALUE. 147 

there are doubtless other girls willing to bring it for a f:iii 
equivalent of their personal efforts only, and because the 
portrait-painter has put a skill that is rare and an exqui- 
site service into the canvas that he sells. The history of 
Economy is full to a surfeit of the theoretical errors and 
of the practical blunders which have come from confound- 
ing value with utility * and from not attending to the fact 
that all utility, until some human service has been mingled 
with it, is absolutely free. God is a Giver. IK- gives 
sunlight and air and water in abundance. He gives tin- 
earth, with all its materials, and with all its powers, and 
with all its spontaneous fruits, gratuitously to man. At the 
very first, He gave to man, "dominion over the fish of the 
seas, and over the fowl of the air, and over every living 
thing that moveth on the earth." So far forth as these gilts 
minister directly to men's wants, there is utility indeed, but 
no value. But since, for the most part, human services are 
required to mould these gratuitous materials, to harness these 
gratuitous powers, to make these gratuitous fruits and ani- 
mals available for use, and since services for this purpose 
are exchanged among men, value springs up in connection 
with these utilities, but must not be confounded with them. 
The utilities, disengaged from the service, are free. God 
never takes pay for any thing, and has not authorized any- 
body to take pay in his behalf ; what is paid for is the ser- 
vice of man, and not the bounty of Nature. Even the 
powers of Nature which men avail themselves of by machine- 
ry, such as water, wind, and steam, all work for nothing : 
water gravitates, and wind blows, and steam puffs, for noth- 
ing. These all, and such as these, help to create utilities, 
but ultimately no value. Value is in the service which 
makes the machine, and in the service which tends it. but in 
the power which moves it, unless that power be human mus- 
cle, there is no value. 

5. In the fifth place, this nomenclature helps us to gel 
rid once for all of one or two mischievous expressions 



148 POLITICAL ECONOMY. 

that have long vexed the discussions on Value. The worst 
of these is the term "intrinsic" as applied to value. This 
adjective almost always, if not always, misleads the person 
who uses it in this connection. There is only one kind 
of value in economics, and that is value as we have now 
defined it, and the use of any adjective that implies that 
there is another kind is of course misleading and vicious. 
Besides, this adjective strongly implies that value is some- 
thing inherent in matter, — an assumption which we have 
now seen to be false. Sometimes the phrase " intrinsic 
value" is used to mean what is much better expressed by 
the term Utility, as when one speaks of the "intrinsic 
value" of a bushel of wheat, meaning its utility as food. 
Sometimes again the phrase is used as if it were equivalent 
to cost of production, in which sense it is sometimes con- 
trasted with ' ' market value ; ' ' but the phrase ' ' natural 
value," another expression worse than needless, is perhaps 
more often employed in this sense of cost of production. 
Both of these adjectives should be wholly avoided as pitchy, 
and all other expressions that imply more kinds of value 
than one. Value is value. The phrase "market value" 
is well enough, because it is often convenient to mark the 
rate at which something is actually selling in contradistinc- 
tion from another rate asked or bid. The only place in 
which the epithet " intrinsic" is even tolerable in economics 
is in relation to certain coins, whose value is made by law 
greater than the value of the metal contained in them would 
otherwise be. For example, any two half dollars are legally 
equal in value to a silver dollar, but the pure silver in them 
is only 346.22 grains to 371.25 grains in the dollar; so that 
one might say without great offence, that the actual value 
of the small silver is greater than the intrinsic value, so far 
as the silver dollar is the standard ; but it would be much 
better to say in such cases, that the nominal or legal value 
is greater than the bullion or metal value. The coin as bul- 
lion is not bought or sold, and so actually has no value: the 



VALUE. 149 

coin as coin finds its value like every thing else in what it 
passes for or fetches. The example will be better under 
stood when we come to the chapter on Money. 

6. In the next place, our nomenclature helps us more 
readily to understand the important distinction between 
Value and Price. It is very interesting to notice in the 
passage from the Roman Law quoted in our first chapter, 
that the point involved in this distinction, was a matter o* 
discussion among the Romans at a very early time. Two 
views were maintained in that discussion. The question 
was, whether the buying and selling of goods was anywise 
different from the exchanging of goods, — "for example, 
whether a man, or a piece of land, or a garment, can be the 
value of another thing. Sabinus and Cassius thiuk value 
can dwell in another thing too ; whence is that which was 
commonly said, — buying and selling is carried on in the 
exchange of goods, — and that view of purchase and sale is 
very old." For this last statement we ought to be thankful, 
for it is probably the only proof in existence, that the 
Romans occupied their minds with this innermost question 
of Political Economy. Sabinus and Cassius were substan- 
tially right, as we have seen, since, no matter what the 
nature of the two things exchanged, each expresses per- 
fectly the value of the other ; and we shall see in the chap- 
ter on Money, that, when goods are paid for in money, 
there is no change in any law of value, but only a new word 
is used, namely Price. Apparently on the basis of tins 
slight difference, however, another view was had at Rome, 
and is even said to have " prevailed." "Writers of a dif- 
ferent school took the opposite view, and thought exchange 
of commodities was one thing, but buying and selling another 
thing; furthermore, they thought the matter could not he 
explained in the case of exchanging commodities which 
thing seems to have been sold as property and which 
as the price, for reason does not allow that both things 
appear to have been sold and given as the price; l>ut the 



150 POLITICAL ECONOMY. 

opinion of Procullus has deservedly prevailed, who says, 
exchange is a particular kind of business transaction differ- 
ent from selling." It is indeed different in one little par- 
ticular. 

Both these Roman views hold clearly that the value 01 
price of any thing is the other thing, whether goods or 
money, exchanged for it, and thus justify the proverbial 
good sense of the Romans. Condillac, on the other hand, 
perceiving that two estimations alwaj^s precede an exchange, 
held that value resides in the minds of men. Because peo- 
ple give value at one time to things to which at another time 
they do not, he held that value is founded on estimations, 
and that value exists before the exchange takes place. This 
was in reaction from the false view that value is an absolute 
quality inherent in things, independently of the opinion men 
have of them. But Condillac went too far in the opposite 
direction. Minds do indeed have an essential part to play 
in determining value, but if there were no outward manifes- 
tation of these mental states, no phenomenon, no effect by 
which the estimation of the mind can be measured, there 
could be no economic science, because there would be no 
class of facts open to observation and induction. Condillac 
makes this distinction between Value and Price : value, 
being a mental estimation, is what a man would give for any 
thing if he could not get it for less ; price, the result of 
contention, is what he actually does give ; and, therefore, 
value and price are not always convertible terms. The true 
distinction turns rather on whether the return service be 
money or something else. 

It is precisely because we have in all cases the return 
service as the outward expression and measure of the desire 
of him who renders the service, and because it makes no 
difference which of two services exchanged be regarded as 
the return service, that our science has an objective char- 
acter, notwithstanding the strong subjective elements that 
have a part in it. The science is reared on the firm ground 



VALUE. L5J 

of objective realities. Even rights are objective realities 
that can be enforced in the courts. 

The pr/ce of anything, tlien, is its purchasing-power ex- 
pressed in money ; the value of any thing is its purchasing- 
power expressed in anj- other purchasing-power whatever. 
Price is a relative word, but specific ; value is a relative 
word, but general. When we speak of the price of a ser- 
vice, we mean the sum of .money which that service will 
buy ; but when we speak of the value of a service, we mean 
the command in exchange of that service over other services 
generally. Thus, we say, " This coat is worth twenty-five 
dollars;" that is its price. The value of the same coat 
never could be completely expressed, because it would re- 
quire a comparison not only with hats and gloves and boots 
and vests, but with all other things which are ever exposed 
for sale. Therefore, for convenience' sake, value is com- 
monly reduced to price. By knowing the price of various 
things, we readily compare their value relatively to each 
other. Thus, when we know the price of the coat at 25 
dollars, and of gloves at 2, of hats at 5, and vest:-, at 10 
dollars, we easily determine the value of the coat as esti- 
mated in gloves, hats, and vests, namely, that its value as 
compared with theirs, is respectively 12£, 5, and 2£ times 
theirs. The value of any thing may remain nearly uniform 
while its price may greatly vary. This will always be owing 
to some great change in the money of the country. In this 
country, from the spring of 1862 till the spring of 1878, the 
current money was much depreciated as compared with gold, 
the premium on which over the paper money varied at dif- 
ferent times from 1 to 185 per cent. There was, in conse- 
quence, a universal rise of prices reckoned in paper money, 
but it may be said in general that values remained much as 
before; that is to say, a given number of paper dollars so- 
called fell in their power to command general servic 
prices rose — while these services continued to command 
each other m exchange much as before, — values were com- 



152 POLITICAL ECONOMY. 

paratively steady. This illustration brings out the privilege 
we have, or rather the necessity we are under, whenever 
special attention is called to one of two services exchanged, 
to speak of its value as liable to vary, meaning its purchas- 
ing-power over other services. Value is always a consum- 
mated relation ; but there is no harm, rather there is a 
necessity, in conceiving and speaking of one service as rising 
or falling in value at different times, according as it com- 
mands more or less of other services. As before remarked, 
this is a concession to language, and not a departure from 
the exactness of science. 

Moreover, it is not possible that there should be any gen- 
eral rise or fall of values, as there may be a general rise or 
fall of prices. A rise in the value of any thing implies a 
fall in the value of those things with which you compare it, 
that is to say, if it will buy more of them, they will buy less 
of it. Its rise in value implies their fall in value, and con- 
versely. Every rise in value of any service involves a cor- 
responding fall in other services ; and every fall in value 
of any service involves a rise in value of other services ; 
and therefore, a general rise or fall of values is impossible. 
Nothing is more common than a rise or fall of value in par- 
ticular services. Suppose, for instance, an improvement in 
machinery b} 7 which broadcloth can be made with one-half 
the former effort, and that no change has been made in the 
efforts requisite to make the gloves, hats, and vests of our 
former example, and no change in the views of those who 
wish to exchange them. The coat will sink at once to about 
half its former value, not only in relation to gloves, hats, 
and vests, but in relation to every thing which does not hap- 
pen to be affected by a similar depressing cause. It is 
correct to say that the value of the coat has fallen. As 
estimated in gloves, hats, and vests, its value now is only 
6£, 2^, and l£ times theirs, respectively. But while coats 
have fallen in relation to the other commodities, the other 
commodities have risen in relation to coats ; and if similar 



VALUE. 153 

improvements should be made iu the machinery by whicl 
gloves, hats, and vests are made, so that one-half less effort 
will bring these also to market, views of parties as before 
remaining unchanged, they will exchange now for coats 
exactly in the same ratios as at first, namely, 12£, 5, ami 
2£, respectiveby, for 1. As soon as the improvements affect 
all the commodities equally, value stands just as it did be- 
fore the first improvement was made. Views of the partita 
remaining the same, it is only an advantage or disadvantage 
affecting some services and not others, that will vary their 
value in exchange : whatever affects them all equally will 
have no effect upon value. Thus, a universal rise of wages 
in any country, provided it could and did affect all depart- 
ments of effort in the same relative degree, would not have 
the least effect upon other values ; and we have just seen 
that a general rise of prices lately experienced in this coun- 
try had little effect upon the general purchasing-power <>f 
services other than money, but was only a token that thfl 
one service, money, had fallen relatively to them. 

7. In the next place, our definition of Value makes it 
needful to inquire and comparatively easy to find out wheth- 
er there is, or can be, any invariable measure of services, or, 
as it has been commonly called, measure of value. A full 
discussion of this point can best be had in the coming chap- 
ter on Money, but it is in order here to ask whether there 
is any standard or measure, by a comparison with which 
we may determine the general purchasing-power of different 
services. It has commonly been supposed that there i^ so ' 
a measure, aud political economists have expended a groat 
deal of strength in endeavoring to discover what it is. Tho 
results have hardly been commensurate with the zeal and 
patience of the search. Adam Smith seen-s at one time to 
regard labor as the best measure of value, that is. the quan- 
tity of labor which any commodity will buy as the best 
gauge of its power to buy commodities in general. At 
another time he seems to think that corn is a better measure 



154 POLITICAL ECONOMY, 

of general exchange value than labor. Ol'iers have thought 
that price furnished the best attainable standard of com- 
parison ; in other words, that the quantity of gold or silver 
which any thing will purchase, will best enable us to deter 
mine the quantity of all other things which it will purchase. 
Others still have supposed that the cost of production of any 
commodity would give the most accurate rule by which to 
decide the value of the commodity ; and still others, as Mr. 
Carey, have suggested the cost of reproduction. But the 
truth i&> a measure of value in the sense in which it has been 
sought after by these writers, is something impossible to be 
realized. It never would have been sought after, unless 
value had been supposed to be a rigid quality inhering in 
commodities, and, when once placed in them by whatever 
process, to be invariable. We have seen, however, that 
value is not a quality inhering in any one thing, but is a 
relation subsisting between two services which two persons 
are in a position to render to each other ; and that this is 
not an inflexible relation, but is variable by any change in 
the views of the two persons, by which either of them puts 
a different estimate upon the service about to be rendered as 
compared with the service about to be received. We have 
seen sufficiently already, that there are four things, and only 
four, any change in any one of which will vary value ; and 
that these four things are two desires and two efforts, the 
two desires belonging to two persons, and the efforts made 
by two persons each for the other. Now these four ele- 
ments are in their very nature so liable to vary, and as a 
matter of fact do so constantly vary, that no man who 
clearly perceives what value is, will waste time and ingenu- 
ity in searching for an invariable standard of that which in 
its ^nature is variable and relative. 

While no invariable measure of vine is possible to be 
found, there are certain limitations and principles of much 
importance . which ought to be given in this connection. 
Although labor alone, as we have seen, cannot be regarded 



VALUE. 155 

as the cause of value, for, if it were asserted to be -.uch, 
the inquiry would be pertinent, what is the cause of the 
value of labor; yet, value always stands in connection with 
human efforts, and, the mutual desires being presupposed, 
there are always limitations of value lying partly in the 
effort made by the person serving and partly in the effort 
saved tc the person served. In every exchange, each of the 
parties is reciprocally serving and served, and it is clear that 
they would not exchange unless the service which each ren- 
ders to the other is less onerous than the effort which each 
would have to make if each served himself directly. It 
costs a certain effort for me to bring water from the spring ; 
I am willing to pay a neighbor for bringing it for me, but I 
should not be willing to make a greater effort for him in 
return than the effort is to bring it myself ; neither should 
I be willing to make an effort for him which I regarded just 
as onerous as the bringing the water : unless there is some 
service which he will accept less onerous to me than that, 
I shall continue to bring the water for myself. On the 
other hand, he will not render the service to me of bringing 
the water, unless it be less onerous to him than the doing 
that for himself which I am ready to do for him. 

This principle, applicable to all exchanges whatsoever, 
draws on the one side the outermost line, beyond which 
value never can pass. It may be asserted with confidence 
that no man will ever knowingly make a greater effort to 
satisfy a desire through exchange, than the effort needful 
to satisfy it without an exchange. Moreover, within this 
outermost limitation which is made by the comparative oner- 
ousness of the respective efforts, there is a second limitation 
of a similar kind. To pursue the same illustration, while 
I should never make an effort for another in return for his 
bringing the water, greater than that required to bring it 
myself, the return effort may be very much less than that 
effort, and may sink down to a point, bf'pw which I can get 
no one to bring the water f ~>r me. Suppose I estimate the 



156 POLITICAL ECONOMY. 

effort required to bring the water myself as 10 ; and that 
there are several persons who would be glad to do that ser- 
vice for me for a return service which I estimate as 8 ; and 
that there are two persons who are willing to do it for some- 
thing which I estimate as 6 ; and that there is only one per- 
son who will do it for a return service which I regard as 5. 
It is evident that the extreme limits of the value of that 
service to me are 10 and 5. Higher than 10 it cannot go, 
lower than 5 it cannot sink. I should render the service 
estimated as 8, rather than forego having the water brought 
for me ; but I shall render the service estimated as 5, just as 
long as there is any one person who will make the exchange 
with me on those terms. If he declines the exchange, I fall 
back on one of the two persons in the class above him, and 
•\ alue rises now from 5 to 6. It will be steadier at 6 than it 
was at 5, because there are two persons ready to render the 
service at that rate. If each, however, in turn should give 
out, I should then be obliged to fall back upon the larger 
class ready to serve me for a return service of 8. At this 
point the value would be very steady from the presence of 
numerous competitors anxious to serve me at that rate, and 
it could by no possibility rise above 10. Between 10 and 5 
the value may fluctuate, but it cannot overpass these limits 
in either direction. Therefore we may say that the maxi- 
mum value of any service in exchange is struck at the point 
where the recipient will prefer to serve "himself, rather than 
make the exchange ; and the minimum value of any service in 
exchange is struck at the point below which the recipient can- 
not get himself served. These two limits, it will be observed, 
are found in the two elements which we have called efforts. 

But there are also limitations of value in the two elements 
which we have called desires. In the foregoing illustration, 
it is supposed that my desire for the water is all the while 
of uniform strength, and the desire of each of the throe 
classes willing to serve me for the return service is uniform 
also, though each class makes a different estimate of the 



VALUE. 157 

comparative efforts. Let us now suppose that the efforts 
on either side remain invariable, but there is a change in the 
element of desire. Any capacity in any thing to gratify 
any desire of anybody is utility. For simplicity's sake, let 
us look only to the one man who was ready to bring the 
water for a return service which I estimated as 5, and sup- 
pose that he is the only man who will do me the service on 
any terms. Let now the utility of the water to me be in- 
creased, and let him know that fact, all other elements 
remaining as before, and he can crowd up the value of his 
service towards 10, according to the intensity of my desire. 
Of course he cannot crowd it over 10, but the limit below 
that will now be determined by the relative strength of my 
desire. On the other hand, if my desire be as before, and 
the two efforts as before, and his desire for my return ser- 
vice be increased, and I know it, and I the only man who 
can render him such a service, I can crowd down the value 
of his service below 5, according to the intensity of his 
desire. Of course I cannot crowd it down below a point, 
which we will call 3, at which, rather than continue his ser- 
vice at that rate, he will forego the exchange altogether. 
But value may vary between these limits, 10 and 3, accord- 
ing to the varying intensity of our mutual desires. If it 
should so happen that both these desires, my desire for his 
seiwice and his desire for mine, should increase simultane- 
ously and proportionably, value would not be affected ; the 
exchange would go on at the same rate as before. Or if 
both desires should diminish simultaneously and proportion- 
ably, value would not be affected. The same is true of 
efforts. If both efforts suddenly become twice as onerous, 
or one-half as onerous as before, the desires remaining the 
same, the value of the two services estimated in each other 
would stand just as before. Thus we see that the natural 
limits of value, and all the variations in value, are to be 
sought for and will be found in the play and interaction of 
the four elements out of which value itself springs. 



158 POLITICAL ECONOMY. 

8. In the last place, our definitions and explanations thus 
far will enable us to understand clearly what is the one 
universal Law of Value, — a law applicable alike to all three 
classes of exchangeable things, and comprehending per- 
fectly all variations in all values. This is termed the Law 
of Demand and Supply. Demand is the Desire of purchas- 
ing something coupled with the Power of purchasing it. In 
other words, demand is the desire of one person for some- 
thing from the hands of another, who also desires somethiug 
from the hands of the first, when both are willing to part 
with what they now have from that motive. Supply is any 
exchangeable thing offered for sale against any other exchange- 
able thing. These definitions are stated in the most general 
terms. 

Now, as Value is always a resultant of four elements, and 
only four, all changes in value must be due to change in 
one or more of these elements relatively to the others ; and 
the universal Law, which shall account for the existence of 
value, and for its amount at both extremes and at all inter- 
mediate points, must be found in just these elements. These 
elements are expressed in the terms Demand and Supply. 
Market- Value is the rate at which services of all sorts are 
exchanging at the present time in the various departments 
of society. What determines that rate? What determines 
that corn is now selling in the market for one dollar a bushel? 
Two desires come in to determine it, — the desire of people 
for corn, and the desire of farmers for money. Two efforts 
come in to determine it, — the effort of farmers to raise and 
bring a bushel of corn to market, and the effort of people 
to secure one dollar in mone3 T . The presence of corn in the 
market, or its being ready to be immediately brought there 
and offered in exchange for money, constitutes what is called 
a Supply of corn ; money offered, or ready to be offered, 
in exchange for corn, constitutes what is called a Demand. 
This is commercial language, and is sufficiently accurate, 
although it must be remembered that each commodity in 



VALUE. 159 

reality constitutes a Demand for the other, and is a Supply 
in reference to the other. But, speaking commercially, the 
money ready to be offered for commodities is the Demand, 
and the commodities ready to be exchanged for money are 
the Supply. 

"What, then, is the law of market- value? The law of 
market-value is the equation of supply and demand : that 
is to say, the rate of the exchange is adjusted when money 
enough is offered to take off within the usual times the com- 
modities on hand. Demand and supply are thus equalized, 
and the current market-rate is determined. If demand for 
any reason becomes quickened, and the supply not increased, 
there is competition among buyers for the stock in market, 
and market-value tends to rise. If demand becomes slug- 
gish, the supply remaining the same, there is competition 
among sellers to dispose of their stock, and market- value 
tends to sink. So far it is the action on value of the element 
of desire, which expresses itself through demand. How far 
can this action go? Demand being increased, supply remain- 
ing the same, value rises : how far does it rise? That depends 
upon circumstances, and upon the nature of the commodity. 
We must remember that demand not only acts upon value, 
but value acts upon demand. As value rises, the number of 
those whose means or inclinations enable them to purchase 
at the new rate is constantly diminished. There are ten 
persona who may wish an article at one dollar, of whom not 
over four will wish it at two dollars, and perhaps only one 
at three dollars. Every rise in value then, under the influ- 
ence of increased demand, tends to cut off a part of that 
demand, that is, to lessen the number of those who will 
purchase at the increased price ; and the value will rise only 
to that point, whatever it be, where an equalization takes 
place between the supply and demand, between the ouantity 
of corn, for example, offered at the enhanced rates, and the 
quantity of money in the hands ot those willing to exchange 
it for corn at the enhanced rates. Thus we see that every 



160 POLITICAL ECONOMY. 

rise or fall of demand, and the consequent rise or fall of 
value, tends to check itself. An increased demand fcr any 
article or service, other things being equal, enhances its 
value ; but the enhanced value in turn lessens the demaud 
by lessening the number of those who will purchase, and 
the new market-rate is struck at the point of equalization 
between the old supply and the new demand. Just so, if 
demand is slackened, value declines ; but declining value 
in turn increases the demand by bringing the article witlm 
the range of a larger number of purchasers, and the decline 
is arrested at the point of equalization between the new 
demand and the old supply, and a new market-rate is deter- 
mined. Every thing oscillates under the variations of de- 
maud, but the point of stable equilibrium, if we may use the 
expression of any thing so unstable as market- value, the 
point of stable equilibrium is always the equation of supply 
and demand. 

In the preceding paragraph we have supposed suppty 
to remain unchanged, and have followed the law of value 
through the variations of demand, which, money being inva- 
riable, as is here supposed, expresses the element of desire. 
Supply expresses the element of efforts, and market- value 
varies with the variations of supply. We have seen that 
every rise or fall of demand tends to check itself, and will 
check itself even without variations in the supply ; but it is 
commonly checked at an earlier point by variations in the 
supply. A brisk demand enhances value, and enhanced 
value commonly stimulates supply, and increased supply 
checks the rise. A slack demand lowers value, and lowered 
value commonly lessens the supply by the action of holders 
and speculators, — holders withdrawing their stock for a 
better market, and speculators buying now when the article 
is cheap, to store away till it shall be dearer. Thus rise of 
value from increased demand is doubly checked ; first, by 
restricting the number of purchasers, and second, by increas- 
ing the supply : the fall of value from slack demand is doubly 



VALUE. 1G1 

checked ; first, by enlarging the number of consumers of a 
now cheaper article, and second, by diminution of supply 
by the action of holders and speculators. This law of the 
equalization of demand and supply, thus doubly and harmo- 
niously working, is the most comprehensive and beautiful 
law in political economy. It is all-comprehensive. Its 
operation in the field of personal services and in the field 
of commercial claims, though perhaps less obvious at ^irst, 
is equally certain and universal as its operation in the Geld 
of material commodities. 

But we must note the action on value of changes in supply 
only, demand continuing stead}'. If the supply be short, 
and cannot be increased at all, as is the case with choice 
antiques and certain gems and paintings by the old masters, 
value may rise to any point, and will be struck, as before, 
at the precise point of equality of the demand then exist- 
ing with the supply there offered. The French Government 
paid, in 1852, G15,300 francs for a painting by Murillo, 
which had belonged to Marshal Soult. The genuine Murillos 
are comparatively few, and their number cannot be increased, 
and their merit causes a strong desire to possess them, and 
their value rises in consequence of the limitation of supply 
to a point beyond which no one purchaser can be found. 
When this painting was offered in Paris for sale, many 
parties were anxious to purchase it, but the equation of 
demand and supply was reached, and its value was deter- 
mined only when oue party distanced all other competitors 
and offered a sum greater than any one else would give. 
There was one painting; there could be but oue punchaser; 
value rose under the influence of demand, and could not be 
checked by increase of supply; and the equation was com- 
plete when the demand was practically restricted to one 
party, and that the highest bidder. The same principle 
controls all sales of this sort. 

If the supply, instead of being absolutely limited, can 
only be increased with difficulty or after the lapse of time, 



162 POLITICAL ECONOMY. 

similar but less extreme results will be obsen ed. Suppose 
pianos are selling in any community at $300 each, and there 
are twenty persons in that community who wish a piano 
immediately, and that there are but fifteen pianos on hand, 
and the number cannot be increased for six months. The 
value will rise above $300. How much above? To that 
point, whatever it be, at which only fifteen of the twenty 
will he willing to purchase at the new rate. The equatk u 
of supply and demand will be reached by a rising value which 
cuts off five competitors. This is the principle, working only 
roughly indeed in practice, — working only by the estimates 
and good judgment of dealers, — but the principle is this, 
A better illustration of this class of cases is, perhaps, the 
grains and other products of the earth. When these have 
been gathered there is no more home supply for a year. 
Any deficiency in the crops will raise their value, not at. all 
in the ratio of the deficiency, but according to the relations 
of the diminished supply to a new demand. Since the aboli- 
tion of the corn-laws in England in 1849, and the consequent 
facility of importation, an estimated deficiency of home 
crops has no such effect on the prices of grain as it had 
before that time ; when, according to Tooke's History of 
Prices, an expected falling off of one-third in the crop often 
doubled and sometimes quadrupled the usual prices ; which 
shows that the world ought to be one in respect to all food 
supplies, each country allowing them to be distributed freely 
everywhere in accordance with this law of Demand and Sup- 
ply. Speculation is more busy in grain, in cotton, and in such 
things generally, because a new supply can only be had once 
a year ; early information is eagerly sought at the trade centres 
in regard to the prospects of the growing crops, and has its in- 
fluence one way or the other on current prices ; but the world 
is so wide, and the parts of it now so closely connected to- 
gether by steamship and telegraph, that the prices of the great 
staples are remarkably uniform over the earth, and specula- 
tion has not the chance it once had to count and " corner." 



VALUE. 1G3 

Iu the only remaining and far more numerous ctass of 
cases, in which the supply of commodities and services and 
claims can be readily and indefinitely increased, each rise 
and fall of value tends to be speedily checked through the 
action of Supply ; and the harmoniously-working law but 
just now referred to keeps value in this class of cases com- 
paratively steady. 

The general theory of value has now been given. In the 
light of it, we may see how wide of the mark are they, who 
regard the study of values as materialistic in contrast with 
what is personal and spiritual. Political Economy does 
indeed make the same distinction as the Roman Law does 
between a Person and a Thing ; but it exalts the person as 
over against the thing, and finds its only interest in things 
as they stand related to persons. It adopts, in short, the 
definition of man as "an animal that exchanges." It is 
able to prove that exchanges are beneficial to men's physical, 
mental, and spiritual natures ; and is consequently averse to 
any thing that stunts the growth of men to their full stature 
as exchangers. It would guard the rights, preserve the 
morals, and exalt the dignity, of men, in order that they 
ma}- both render and receive the full benefits of all possible 
exchanges. While we shall find no case of value, or its 
variations, which our general theory does not cover and 
explain, we shall still find important principles which act iu 
particular cases on Demand and Supply, and thereby must 
act upon Value. We have, then, now seen what Value 
really is ; how it practically arises ; the elements which 
alone can vary it ; and the universal Law which limits 
it. 

The following propositions gather up the substance of the 
present chapter : — 

1. Value is always an expressed result; and is one of the 
chief realities with which men have to deal. 

2. A peculiar kind of comparison, and an actual exchange, 
constitute Value. 



164 POLITICAL ECONOMY. 

3. Two persons, two things, two desires, tioo efforts, two 
estimates, and two satisfactions, form the circle of Value. 

4. It is the relation of mutual purchase established between 
two services by their exchange. 

5. There are three kinds of exchangeable things, and but 
six possible cases of exchange. 

6. TJie word Services unfolds best the inmost nature of 
Value. Service for Service is the universal formula. 

7. Value is no attribute of matter, and must not be con- 
founded with Utility. 

8. Price is only a special form of Value. 

9. There are limitations of Value, but no strict measures 
of it. 

10. TJie Law of Value is found in the billowy play of 
Supply and Demand. 



PRODUCTION. 165 



CHAPTER IV. 

PRODUCTION. 

Value is the sole subject of our science ; and we have 
just seen at great length and through every variety of Illus- 
tration, that, while value always takes its rise in the desires 
of men, it is never realized except through the efforts of men, 
and through these efforts as mutually exchanged. In other 
words, value is always an accomplished Result ; but then, 
all the processes that directly lead up to this result are a part 
of the science, and are called Production, which is the sub- 
ject of the present chapter. While it is impossible to make 
discussions in Political Economy amusing, it is also impossi- 
ble intelligently to conduct them without coming constantly 
to conclusions that are cheering. "We shall find several laws 
underlying the processes of Production, that show clearly 
that men were designed to be producers, and to produce 
under conditions of constantly increasing advantage. The 
world with its forces, and man with his motives, are so 
admirably constructed, that these conditions of increasing 
advantage cannot fail, under freedom, to redound to the 
benefit of the masses of men. Economics, like Christianity, 
lift the masses. We will first determine the meaning of our 
scientific terms, and then pass to some of the facts and laws 
of Production. 

Every man who puts forth an effort to satisfy the desire 
of another, with the expectation of a return, is, in the lan- 
guage of Political Economy, a Producer. The Latin word 
producere means to expose any thing to sale. Our derived 
word to produce means the same. The Latin poet Terence 



166 POLITICAL ECONOMY. 

uses the expression, " producere servos," to offer slaves for 
sale. He did not mean to say that the person of whom he was 
speaking brought the slaves into being or transformed them 
in any way, but only brought them out to sell. We must 
rid ourselves at the outset of the notion, accordingly, that is 
apt to linger about this word, namely, that it is only to be 
applied to forms of matter, that it means to make something, 
or to grow something, or at least to transform something, 
only. In common language, the growth of the farm is called 
Produce, but only when it is offered for sale, in which sense 
we speak of the produce-market. The fundamental meaning 
of the root-word both in Latin and English, is effort icith 
reference to a sale, and this is the exact scientific sense in 
which we propose to use the word and its derivatives. A 
product is a service ready to be rendered. A producer is any 
person who gets something ready to sell and sells it, whether 
that thing be a commodity, a service, or a claim. Political 
Economy is interested in all classes of producers alike, and 
demands a fair field for every person who has any thing to 
sell which is in demand on the part of others, provided first, 
that he do not cry his wares offensively in any way or in- 
fringe the right of anybody else to his own time and quiet, 
and provided second, that his solicitation and sale do not 
interfere with the public health, morals, or revenue. Pro- 
duction is blessed ; but let no producer trifle with the inter- 
ests of his fellow-men that are higher than his or their 
individual gain. Even Science, while claiming all its own 
field, may deprecate infringements in its name upon neigh- 
boring fields : — 

"Speed on the ship! — But let her bear 

No merchandise of sin, 
No groaning cargo of despair 

Her roomy hold within. 
No Lethean drug for Eastern lands, 

No poison-draught for ours : 
But honest fruits of toiling hands, 

And Nature's sun and showers." 



PRODUCTION. 1G7 

These lines of Whittier touch also incidentally upon the 
three requisites of Production. These are, first, Natural 
agents, including not onl}' " nature's sun and showers," but 
all the forces aud fertilities and agencies of free nature, that 
men may avail themselves of in preparing services to ex- 
change with other men; second, Labor, — "the toiling 
hands," the inventive brains, the eloquent tongues, and the 
skilful manipulations of every name.; and third, Capital, 
of which the poet's "ship" is an instance, — the results of 
previous toil reserved to help on some future sales. These 
three conspire in all production, and especialby in all pro- 
duction of material things. Nature comes first with her 
gifts ; present toil aided by the results of past toil does all 
the rest in production. Natural agents assist and sustain 
the processes, but the}* are not of equal rank in production 
with man and his efforts. 

Production is always Effort, but it is not every kind of 
effort that is production. One of my boys is now playing 
the piano in the parlor; it is effort for him, — irksome 
effort. — but as he has no intention ever to sell his acquired 
skill on that instrument, it cannot be called productive effort. 
It is effort put forth for altogether other than commercial 
reasons. The effort of his music-teacher, however, who 
comes here to give him his lessons, is productive effort, inas- 
much as it is put forth solely with reference to a sale. 
Efforts of all kinds that find their purpose and end in an 
exchange, are Production ; efforts put forth for amusement, 
for self-improvement, for benevolence, for personal or family 
gratification, are not Production. Political Economy has 
to do with processes only as these are related to sales ; and 
it makes no difference what kind of processes they are, if 
they have that design and issue. 

Standing over against Production is its correlative Con- 
sumption. This word is derived from the Latin consumptio ; 
and, like that word in Latin, has two meanings in English; 
first, wasting, destroying, or second, ming, employing. The 



168 POLITICAL ECONOMY. 

second is the sole economical sense of the word, although 
many writers have not escaped the taint of the ambiguity ? 
While many things that are purchased are destroyed as to 
form almost immediately, many other things that are pur- 
chased are not thus destroyed, while both classes alike by 
their sale are economically "consumed." Mr. Senior pro- 
posed as an improvement in nomenclature, the expression 
"to use" instead of. the expression "to consume." But 
the words "to consume," "consumer," and "consump- 
tion," are too strongly intrenched in our science to be dis- 
lodged ; corresponding words in French and Italian, though 
rather derived from consummare than consumer e, are used 
economically and similarly ; and all that is necessary in any 
case is to define and employ them with exactness. To con- 
sume is to purchase any thing. The consumer is the pur- 
chaser, or customer. Consumption is purchase. We have said 
that consumption is the correlative of production, but only 
in this sense, that each party to an exchange is both pro- 
ducer and consumer ; each is producer as having prepared 
himself to sell something, and' each is consumer as being 
prepared to buy something. These words are correlative 
just as demand and supply are correlative. There is no 
production independent of consumption, and no consumption 
independent of production ; and there is no need, accord- 
ingly, of treating consumption, as Wayland and Walker 
have done, as a separate branch of the subject. 

The reader must now be notified that this nomenclature 
is broader than that which has been hitherto current. Adam 
Smith, and the second school generally, confined "produc- 
tion" to the occasioning of changes in form or place of 
material objects. He gifted with the title of " producer " 
the farmer, the mechanic, the miner, the hunter, the fisher- 
man, and the transporter, because they bring to the market 
a material commodity ; and refused the honor of the term to 
those who render simple services, or claims to a future ren- 
dering, however essential these may be. Of course this is 



PRODUCTION. 1G9 

wrong, because it is narrow. It proceeds from an inadequate 
analysis of Value. That which is "produced," that with 
which we have to deal, is not any form of Matter, but is a 
valuable Service. It is plain, that they are "producers," 
whose direct action originates value ; but we have seen per- 
fectly already, that value is not an attribute of matter, but a 
relation of mutual services. Some of the services may have 
been employed upon matter, and in a certain sense may be 
embodied in it, but what is really sold is not the matter, but 
the services ; and services are all the time being sold, such 
as those of the singer, the teacher, the clergyman, and scores 
besides, which have no connection whatever with matter. 
Yet these services have purchasing-power precisely like other 
services, the action of these persons originates value, and 
therefore, they are " producers." Once more, then, we 
define Production as the whole rendering of any thing for 
which something is demanded in return, and Consumption as 
the receiving of something for which any thing has been pre- 
pared to be rendered and is rendered in return. 

Two things are here worthy of notice before we pass on. 
First, in the light of these true and simple definitions, how 
utterly misleading seems the old description of Political 
Economy as "the science of the Production, Distribution, 
and Consumption of Wealth." A worse description of a 
good science could scarcely be put together in words. To 
say nothing more than has been already said about the 
irreducible word "wealth," this description as used by 
the second school implies that "production" is one thing, 
" distribution " another, and " consumption " still another! 
Professor Walker at the opening of his Wages Question makes 
each of these distinct from the others, and then makes " ex-, 
change ' ' distinct from all three of them. This is not analy- 
sis, but concision. The second school borrowed all those 
terms from their predecessors, the physiocrats, and then 
commenced and continued to misapply them. As first used 
the terms were well enough, but as used since they have 



170 POLITICAL ECONOMY. 

become too bad. The physiocrats, as we saw in the first 
chapter, made the grand distinction between Mens (goods 
not sold) and richesse (goods sold) . Bnt their too narrow 
fundamental notion was, that the physical earth is the only 
mother of real richesse. Hence they are often called the 
agricultural school, and hence they followed with extreme 
care each form of the raw produce of the earth until it found 
its ultimate consumer. The person who extracted or ob- 
tained in any way this raw produce from the earth and sold 
it, for example the farmer, was called by them a producer; 
the person who transformed or transported this once or 
more, for example the miller or baker, and then sold it, was 
called by them a distributer; and the person into whose 
hands it came by purchase for final use, for example the 
boarder, was called a consumer or consommateur. They 
tried to trace their article of richesse through all its commer- 
cial changes to the end, as wheat, flour, bread, and board. 
To their minds it was one complex process through which 
some one thing passed, every step of which was accompa- 
nied by an exchange, and the whole of which is well de- 
scribed by the single term " exchange." They used the 
whole phrase, " the production and distribution and con- 
sumption of wealth," as indicating one really indivisible 
process, and never dreamed that their successors of the 
second school would tear it as they have done into confused 
disjecta membra. The ingenuity and patience displayed in 
trying to make and understand these artificial distinctions, 
would, if applied to the natural divisions of the subject, 
have advanced the science many stages. 1 

Second, in the light of the true definition of production 
and consumption, we may see how false is that estimate in 
the popular mind, by which producers are placed in strong 
contrast with consumers, as if these were quite separate 
classes, and as if the producers were the meritorious people 

i See Macleod in the third of his Cambridge Lectures, and in Elements of Eco- 
nomics (1881), pp. 61 et seq., for a good exposition of physiocratic doctrine. 



PRODUCTION. 171 

iind the consumers nearly worthless ones. This notion is 
very shallow, and perhaps for that reason is widely extended. 
The growers and manufacturers of material commodities 
60ioa to many more worthy of encouragements than those 
who buy these products ; but, as a matter of fact, manv 
of these buyers buy directly or indirectly with other material 
commodities; and those who buy with labor, as operatives, 
and those who buy with claims, as bankers, and those who 
buy by transportation, as shippers, are just as essential to 
exchange as the farmers and manufacturers. Even in this 
false sense of the words, that connects them directly with 
some tangible commodity, where would the "producers" 
be were it not for the "consumers"? Where would pro- 
duction be at any one point if it were not for production at 
other points, by means of which to take off, that is, " to con- 
sume," the products of the first point? In the only scien- 
tific sense of the terms, each party to an exchange is at the 
same moment " producer" and " consumer," because each is 
at the same moment buyer and seller, and because each 
has gone through the processes or become proprietor of the 
results of the processes by which each service has been 
fitted for the exchange, and this too without any reference 
to which one of the three kinds of valuable things it is that 
either party renders. Economy deals roughly with many 
popular illusions, and leaves no vestige at all of that one 
■which exalts " producers " at the expense of " consumers." 
Having now a clear and correct nomenclature, we may 
proceed to the facts and laws of Production, and be sure of 
our results. The strength and safety of our conclusions 
are derived from the simplicity and certainty of the forces 
at work. No man has ever denied the great facts that lie 
at the basis of exchange. That men are possessed of de- 
sires, that efforts are necessary in order to meet these, that 
these efforts are exchangeable, and that mutual satisfac- 
tions are the result of the exchange, are propositions univer- 
sally admitted. From these simple truths spring all the 



172 POLITICAL ECONOMY. 

laws of our science. One man may and does put forth the 
effort necessary for the satisfaction of another man's desire. 
But since the effort is not for himself but for another, and 
since to put forth efforts is not naturally agreeable to man, 
and never becomes so except in connection with the satis- 
faction to which they minister, he will demand for his effort 
some corresponding effort made for him. This is a simple 
fact. No man will work for another for nothing. But he 
will work with alacrity and persistency in view of a suitable 
reward. This reward is the return service, whatever it may 
be, and thus it happens that Society is one vast hive of buy- 
ers and sellers, every man bringing something to the market 
and carrying something off. We speak of the commercial 
classes, but all classes are commercial. Everybody ex- 
changes. You do something for me, and I will do some- 
thing for you, is one of the deepest laws of Society. From 
this results the division of employments, and all the various 
professions. Each person brings his own product and ex- 
changes with other persons as best he may. The farmer 
brings his produce, and exchanges ; «ae mechanic brings the 
product of his skilled labor, and exchanges ; the laborer 
brings his strength, the teacher his knowledge, the merchant 
his goods, the banker his credits, the physician his skill, the 
lawyer his lore, the clergyman his life and learning, the 
editor his scissors and leaders, the singer his voice, the actor 
his mimicry, and so on to the end of the list, and all are 
ready to do service, — for a consideration. Indeed, when we 
look out upon Society, the most striking thing we observe 
about it is, that these processes of preparation and these 
actual exchanges are going on in a thousand directions at 
once, determining all occupations and the tenor of all men's 
lives, reaching everywhere and permeating every thing, and 
all this the more rapidly and perfectly as advance knowledge 
and civilization and the mingling of the nations. 

1. The Amount of Production, as measured by money or 
otherwise, in any progressive country or any part of it, not 



PRODUCTION. 173 

to mention the world at large, is something amazing, and is 
becoming constantly greater. This little State of Massa- 
chusetts, containing but 7,800 square miles, made in 1875 
$532,136,333 of manufactured goods to sell ; and this was 
only &part of one class of salable things offered in one small 
State. The great prairie State of Illinois, whose main pro- 
duction was of course agricultural, yet in 1880 put into the 
market $444,000,000 worth of manufactures. It is only by 
snatches here and there that we can gain any adequate idea 
of the vastness of the Production of our own country. 
There was produced of pig iron in the United States in the 
year 1880 4,295,414 net tons ; of rolled iron (excluding 
rails) 1,838,906 net tons; of iron and steel rails for rail- 
roads 1,461,837 net tons; of all kinds of steel (excluding 
steel rails) 1,397,015 net tons; and of anthracite coal 
27,433,329 gross tons. The cotton crop of the United States 
for 1880 was 5,737,257 bales; the corn crop 1,537,000,000 
bushels ; and the wheat crop 480,000,000 bushels. The for- 
eign commerce of the United States for the calendar year 
1877, under a tariff-system designed to restrict foreign trade, 
was $1,176,000,000; and the foreign commerce of Great 
Britain with one third less of population, under a free sj's- 
tem of trade, amounted to $2,978,355,000 in the same time. 
During the fiscal year closing June 30, 1881, the foreign 
trade of the United States, notwithstanding the obstacles of 
a restrictive tariff, amounted to $1,544,912,692; for it is 
hard work even by hostile legislation to destroy the com- 
merce of a great people. 1 The volume of the foreign trade 
of Great Britain for their fiscal year closing March 31, 1881, 
was between two and three times larger than that of the 
United States. These immense sums represent but a small 
part of the traffic going on in these two countries in tangible 
goods alone ; because the volume of domestic trade in com- 
modities is always many fold larger than the volume of for- 
eign trade. The volume of wages of all kinds paid in these 

- Report U. S. Bureau of Statistics. 



174 POLITICAL ECONOMY. 

two countries in a year is a sum impossible to be ascertained. 
As a mere hint of the amount of transactions in claims in 
these countries, note, that the average daily clearings of 
credit-paper at the New York clearing-house alone from 
1872 to 1878 was $78,000,000, and the daily clearings io 
London alone for the same time were $100,000,000. Since, 
then, as a matter of fact, Production on a gigantic scale is 
going forward, not in the public market-places only, but in 
every department of life ; since men do constantly put forth 
onerous efforts of all kinds in order to get ready to satisfy 
other men's desires, and this for the sake of receiving back 
from them the results of corresponding efforts in return ; 
there must be strong reasons in the nature of things and in 
the nature of man for such striking facts as these. 

2. Let us now look into the Grounds of this varied Pro- 
duction. The desires of men are not only various in kind 
and indefinite in degree, but also tend to increase in variety 
and extent by the progress of knowledge and freedom. To 
the gratification of almost all these desires, however, there 
are obstacles interposed, some of which are physical and 
some moral ; and these obstacles are so great in all direc- 
tions, that the powers of the individual man are utterly 
incompetent to surmount them. They mock at his weak- 
ness, and throw him back upon his destitution. Without 
association with his fellow-men, there is no creature so help- 
less, so unable to reach his true end, as is man ; and there- 
fore it is, that the impulse to association is one of the 
strongest of our natural impulses. Men come together, as 
it were by instinct, into society ; and, associating themselves 
together in a society, it is very soon discovered, not only 
that there are various desires in the different members of the 
community which are now readily met by co-operation and 
mutual exchange, but also that there are very different 
powers in the different individuals in relation to those obsta- 
cles which are to be surmounted. There is a vast diversity 
in natural gifts. One man has physical strength, with no 



PRODUCTION. 175 

mechanical ingenuity ; another combines with a feeble body 
a wonderful knack for contrivance ; a third has a philosoph- 
ical turn, liking to examine into the laws of nature ; and a 
fourth has a bent and genius for traffic. Now, then, Nature 
speaks in, this diversity of gifts in as loud a voice as she can 
utter, in favor of such a degree of association and exchange 
as shall allow a free development of these varying capaci- 
ties, while they work upou the obstacles to the gratifica- 
tion of men's wants which are appropriately opposite to 
them. 

It is, then, personal interest that leads men to produce, 
and this is one of the strongest, if not the strongest, of the 
natural and social forces. It is because a given effort put 
forth for another, in view of a return, realizes more of sat- 
isfaction than when put forth directly for one's self, that 
exchange ever takes place. Why does it realize more? 
Because there is diversity of advantage between dif- 
ferent MEN AND BETWEEN DIFFERENT NATIONS, IN DIFFERENT 

respects. All exchange depends on diversity of relative 
advantage ; and diversity of relative advantage exists by 
God's appointment among individual men, and among the 
nations. Reserving this national diversity for a later dis- 
cussion, it is very clear that a diversity of advantage in 
different things displays itself as between the individuals 
of every community large and small. There is no village in 
which one man has not an advantage over his neighbors 
in the making of coats, another in the shoeing of horses, 
another in the curing diseases, another in the keeping a 
school ; while each of those neighbors may Lave an advan- 
tage over each of these in some other art or avocation. 
This diversity of advantage in various directions depends, 
in every advanced state of society, partly upon diversity of 
original gifts, partly upon concentration of personal effort 
upon the one set of obstacles that lie in the path of a single 
branch of business, and partly upon the use, and familiarity 
in the use, of the gratuitous forces of nature which Wd 



176 POLITICAL ECONOMY. 

their aid towards overcoming these obstacles. As the result 
of one or two or all of these, one man comes to have a 
legitimate advantage over others in his own branch of busi- 
ness, whatever it is ; and the others come to have a legiti- 
mate advantage over him in their own branches of busi- 
ness, whatever they are ; and if he has desires which their 
efforts can satisfy, and they desires which his efforts can 
satisfy, nothing more is necessary to a profitable exchange 
between them than this relative advantage at different 
points. 

For example, the tailor and blacksmith can profitably 
exchange their respective efforts just as soon as each has a 
relative superiority to the other in his own trade, provided 
of course each has a desire for the product of the other : 
and the greater the relative superiority of each to the other, 
the more profitable is the exchange to both. This is a point 
of considerable consequence, and will repay some pains in 
illustration. If the blacksmith can shoe horses only a little 
better than the tailor could shoe them, and the tailor make 
coats only a little better than the blacksmith could make 
them, there will be only a slight advantage in their mutually 
exchanging efforts. For the sake of clefiniteness, let us say, 
that the tailor's capacity in making coats is 6, and his capa- 
city in shoeing horses is 5 ; and the blacksmith's capacity in 
shoeing horses is 6, and his capacity in making coats is 5. 
Each has a relative superiority to the other of 1, and if they 
exchange, there is an advantage of 2 to be divided between 
them. Now let us suppose that each, by exclusive devotion 
to his own trade, by developing his latent skill and ingenu- 
ity, and by availing himself of all the forces of nature at 
his command, comes to have a capacity in his own business 
of 15, his capacity in the other business remaining as before 
at 5. Each now has a relative superiority to the other of 
10, and when they exchange there is an advantage of 20 to 
be divided between them. The motive to an exchange, ancl 
the gain of an exchange, are ten times greater than thev 



PRODUCTION. 177 

were before. Therefore we lay down the principle, as uni- 
versally applicable to all exchanges, that the greater the 
relative superiority at different points, the more profitable 
do exchanges become. If this principle is just, and we may 
latter om selves that it will be found to be just, it follows, 
'hat ever}' man who has any thing to exchange, is directly 
interested in the success of his fellow-citizens, that every 
trade finds its advantage in the increasing development of 
other trades, and that all discoveries and inventions b} T which 
Nature is made to pay tribute to any art is, restrictions 
apart, so much clear gain to the world at large. In the 
light of sound principles, what has been sometimes called 
the jealousy of trade is simply sill}'. 

3. We may well note next the Conditions of successful 
Production. As soon as there is any difference of relative 
advantage, there begins to be a motive for an exchange, and 
a gain as the result ; and the motive and the gain become 
stronger and greater as the difference increases ; so that the 
gains of exchange are the greatest in that state of society 
in which the freest opportunity is allowed to every individ- 
ual to employ his peculiar powers in work for which he is 
best fitted, in which desires are so various and employments 
so diversified as to give a chance for all kinds of efforts, 
and in which men avail themselves to the utmost of those 
natural advantages and gratuitous powers which lie open to 
their disposal. Association is the first main condition of 
production. Men must come together either locally or com- 
mercially, must learn each other's wants, must compare with 
each other powers and tastes and opportunities, must come- 
to have some confidence in each other, and begin by render- 
ing services back and forth to experience the satisfactions 
and the new strength that exchanges bring. Whatever im- 
proves the character of men, and thus leads to greater con- 
fidence among them, will enlarge their commerce, and knit 
closer and wider ties of association and product ion. Neigh- 
borhood associations and productions soon create a surplus 



178 POLITICAL ECONOMY. 

to be exchanged with other neighborhoods ; parts of single 
nations however remote from each other find a relative diver- 
sity of advantage and an increasing profit in connecting 
themselves by the ties of trade ; and the separate nations 
learn, though late, that they are only one great fanny for 
the grand ends of production and progress. Now, this 
broad association as between persons and nations, instead 
of detracting at all from the individuality and power of each, 
is the very thing that brings out the individuality, and inten- 
sifies the power, of each ; because it is only thus that full 
scope is given to the exercise and development of each 
peculiar power whether of the individual or of the nation. 
Carey is wholly right in his principle that the degree of indi- 
viduality depends on the degree of association, each advan- 
cing hand in hand with the other ; while he seems to be wrong 
in lacking confidence in the natural forces at work tending 
to the highest degree of association and consequently to the 
highest degree of individuality. Personal interest and a 
strong sense of justice are driving society continually to 
exchange, and to a wider and wider application of the prin- 
ciples of exchange, that is to say, to a higher and higher 
degree of association, which allows of course a freer growth 
of individuality. When interest and justice fail as motive 
powers, at least in this department, it is in vain to trust to 
an inferior and factitious force. 

Invention is the second main condition of production. 
Production is processes ; and Nature stands ever ready Avith 
her free agencies to facilitate these processes, just so far as 
the inventive brain of man can contrive to unite the two. 
Invention is the marriage of a gratuitous force to an oner- 
ous process, and the fruit of that union is an easier way and 
multiplied utilities. There are some in every considerable 
community, who like to contrive, who find their joy in find- 
ing a new power in Nature or some new application of an 
old power ; were i not for association and exchange, the 
individuality of these would be repressed, and they would 



PB0DUC10N. 179 

have to drudge for their daily br^ad ; but the worth of in- 
ventors is well understood in every progressive community, 
and under exchange their livelihood is guaranteed by those 
who hope to profit by its results while their work is matur- 
ing ; and Production rejoices and grows strong and throws 
out unnumbered hands to make instant use of the new 
power and the easier processes. 

Freedom is by far the. most important of the conditions 
of production, because, where freedom is conceded, associa- 
tion and invention follow in time by laws of natural sequence. 
By freedom is meant the practical right of every man to 
employ his own efforts for the gratification of his own wants, 
either directly or through exchange. Each man's right of 
freedom is limited of course by every other man's right 
of freedom which he is not at liberty to infringe ; and also, 
in certain respects, by what is called the general good, of 
which the judge must be the government under which he 
lives. Under these limitations, which limit in common all 
other rights, the right to produce is just as much of a right 
as the right of breathing. It stands on the same unassail- 
able ground. Every man has a natural, self-evident, and 
inalienable right to put forth efforts for his own well-being ; 
and whenever two men find that by exchanging efforts with 
each other, they can better promote their own happiness, 
they have an indisputable right, subject only to the above 
limitations, to exchange ; and it is a high-handed infringe 
ment of natural rights, a blow aimed at the life and source 
of property, when any authority whatever interferes to re 
strict or prohibit the freedom of exchange, except that act 
be justified by a solid proof that other private or public 
rights which are as well based as the right of exchange are 
infringed thereby. Happily, since governments have be- 
come more enlightened than formerly, they perceive for the 
most part that they have no rigu.t to interfere with this 
natural right of their people, and also, that by interfering 
with it, they would do them an incalculable injury. The 



180 POLITICAL ECONOMY. 

only motive to a mutual exchange of services, that is to say, 
to a free production, is always and everywhere the mutual 
benefit of the parties. After all the processes have been 
gone through with and the exchanges consummated, all the 
parties are richer than before, that is, have more satis- 
factions, otherwise processes and exchanges would cease. 
Therefore, a free production benefits everybod}', and harms 
nobody. Moreover, under a system of free production, 
every man is allowed, under the stimulus of self-interest, to 
follow the bent of his own mind, to work away at those 
obstacles to the gratification of human desires which he 
feels himself best able to overcome, and to avail himself 
of all those helps in his work, of which Nature offers to him 
a full store. Under these circumstances, obstacles give way 
in all directions : the amount of material products produced 
and offered for exchange is vastly augmented ; the number 
and variety and excellence of the services proffered is indefi- 
nitely increased ; the diversified and rapidly increasing de- 
sires in such a community are readily met by exchange ; all 
peculiar facilities are taken advantage of, and the difference 
of relative advantage becomes great in all directions, and a 
new day of industrial and commercial prosperity is ushered 
in. Under freedom all men have the greatest possible 
motive to produce, because they can dispose of their efforts 
to the best advantage. They can purchase with these 
efforts what they will, and when they will, and where they 
will. Thus freedom leads to extended association, and, 
speedily also, to the invention of machinery and all labor- 
saving appliances. Therefore, again, no reason can be 
given, no good reason ever has been given, why processes 
and exchanges should not be the freest possible. 

4. One of the underlying laws of Production is, that oner- 
ous efforts bear a less and less proportion to realized utilities. 
Men have a strong motive to substitute, whenever they can, 
force for muscle, machinery for labor ; and Providence has 
placed freely at their disposal such materials and forces in 



PRODUCTION. 181 

Nature, that, availing themselves skilfully of these, irk- 
some efforts are lessened, and at the same time, the lessened 
efforts are more productive. For example, the first people 
ground their grain by hand ; and it was a weary task to sit 
cramped by the mill all day, and turn, and turn, and turn. 1 
The effort was great, and the result was small. At length 
it occurred to somebody that the weight of water might turn 
a wheel, and that the wheel might turn the mill-stones. 
Once thought of, the water-wheel was soon an actual fact : 
instead of human strength, Nature wrought now, and what 
is better, wrought for nothing ! Human sendees were still 
needed, and doubtless more of them ; the hopper must be 
fed, the bags tended, and the meal distributed ; but there 
was less ache and more product ! More grain was ground, 
bread came easier to the poor, and the wheel which free 
water turned blessed its patrons with increased and cheap- 
ened products. The old hand-loom, to take another in- 
stance, was the only means antiquity knew of for procuring 
clothing of fabrics. The shuttle was thrown by human 
muscle. Every thread cost a throw. Women for the most 
part did the weaving, and the word wife is supposed by 
many to be connected in its derivation with the word weave. 
While the slave woman sat on the ground, and turned the 
handle of the mill to grind the grain, the wife was exalted 
to the dignity of the loom, and worked away at the monot- 
onous task, thread by thread, thread by thread. Doubtless 
the hand-loom was a great improvement on the earlier pro- 
cesses, and was itself gradually improved as the centuries 
went by, each improvement being the substitution either of 
a gratuitous force of Nature for an irksome human effort, 
or an easier process of art for a more laborious one. Every 
step of improvement was a lessening of obstacles with ref- 
erence to a given satisfaction. All the way up to our pres- 
ent admirable machinery — the power-loom, which weaves, 
as if by magic, while a child can tend it — eveiy step baa 

1 Exod. xi. 5; Isa. xlvii. 2. 



182 POLITICAL ECONOMY. 

marked a lessening of efforts relatively to utilities. The 
utility, the satisfaction, the yard of cloth, has cost less and 
less of human effort, not only to the producer, but, through 
exchange, to everybody. So again the farmer, who used 
to cut his meadow-grass with a hand-swung scythe, then 
rake it up with a hand-drawn rake, and then pitch it into the 
loft with a hand-lifted fork, now mows and rakes and pitches 
by the medium of machines ; and so far forth, the well-cured 
hay costs less to all concerned. This progress from difficult 
to easier, from costly to cheaper, thus briefly illustrated in 
the three cases of flour, cloth, and hay, has been going on, 
and is constantly going on in all directions ; more strikingly, 
indeed, in the production of material commodities, in which 
the powers of Nature may be indefinitely applied by ma- 
chinery, while at the same time there is no production of any 
kiud that is not greatly facilitated by the progress of knowl- 
edge and experience ; and the benefits of this increasing 
advantage, and of this increasing diversity of advantage, 
come home through exchanges to everybody ; and, conse- 
quently, the satisfactions of all bear a larger and larger 
proportion to their efforts. 

What is the effect on values of these processes now made 
easier in all directions? Clearly, since value is nothing but 
the relation between two services exchanged, no effect at all 
is produced on values, if the improvements have gone on 
equally in all directions. Every thing exchanges just as 
before. If the improvements have not gone on equally, then 
the value, that is, the purchasing power, of those products 
is diminished in whose production the improvements have 
been relatively greater. There is now less of human efforts 
represented in these and more of gratuitous forces, and, the 
two elements of desire remaining as before, the intelligence 
of buyers and the competition of other sellers will press 
down the value of these products at any one point of sale, 
that is, more of them will have to be rendered as against less 
assisted products. The utility of these first products, how- 



PRODUCTION. . 183 

ever, that is, their capacity to gratify desire, remains as 
before : a less effort has brought forth the same utility. 
But the portion of effort thus set free does not probably 
remain idle. It will be still put forth to create a larger num- 
ber of products of the same kind, each one of which indeed 
has less purchasing power than before, but the aggregate 
value of which may be much greater than before. For 
example, when machinery is employed in the making of 
gloves, which before were cut and stitched b} r hand, the 
value of a pair of gloves, estimated in any thing whose pro- 
duction has not been altered by a similar improvement, will 
infallibly decline ; but the aggregate value of all the gloves 
made in the establishment will be greater than before, be- 
cause otherwise there would have been no motive to intro- 
duce the machinery. No new element has come into the 
determination of the value of any pair of these gloves : it is 
still the old circle of desires and efforts and estimations : 
this machine, and all other machines, can create no value. 
The machine helps to create utilities, since each pair of the 
now increased number of gloves has the same utility as a 
pair of the former fewer number ; and the maker of gloves 
is able to render a service to a greater number of persons 
than before ; and it is true, that, for a time, especially if the 
new process be not yet generally applied to glove-making, 
before Value has a chance to adjust itself to the new state 
of things, he may realize extra gains ; he may obtain, in 
part, the old price for his new product, and this is the very 
thing that led him to invent or to purchase the machine ; but 
it is confusion to say that the machine creates value: the 
machine lessens one of the two onerous efforts, which, in 
conjunction with two desires, issue in value ; and he who 
renders this assisted service may have a temporary advan- 
tage over him with whom he exchanges. But just as soon 
as machines come to be generally employed in the business, 
Value tends to adjust itself through competition to the real 
human effort in the service rendered, and the extra gains of 



184 POLITICAL ECONOMY. 

the first operators are cut off. The gain of the reduction 
has now become permanent to all consumers of gloves. It 
is this interval between the old price and the new which gives 
to producers the margin for their enterprise, and a sharp 
spur to invent and adopt improvements. The improvements 
once become general, the gain redounds to the whole com- 
munity. The value then of all services which have been 
facilitated by improved processes, is constantly being les- 
sened relatively to services not equally facilitated ; and here 
we gain the first glimpse of a truth, which will afterwards 
appear in the clearest light, namely, that the value of com- 
modities tends to decline as compared with human labor, and 
therefore, that there is inwrought into the nature of things 
a tendency towards the elevation of the masses of men in a 
scale of comforts. 

5. Another leading proposition of Production is, that pro- 
duction may go on indefinitely in all directions without ever 
a fear of reaching a general glut of products. This impor- 
tant proposition was first fully developed by Say in chapter 
xv. of his well-known treatise ; and the proof of it, and some 
of the consequences of it, are well worthy of our attention. 
Let us put the proof of it in our own way, and in this form : 
the desires of men which the efforts of other men can satisfy, 
are unlimited in number and indefinite in degree ; and there- 
fore, mutual efforts can continue to be put forth in exchange, 
until these unlimited and indefinite desires of all men are all 
met — a goal which never can be reached. This proposition 
demolishes at a stroke the fallacy which pervades Dr. Chal- 
mers' interesting but not over-sound book on "Political 
Economy," namely, that the universal market is limited, and 
therefore, were it not for the unproductive consumption of 
the rich and luxurious, and the equally unproductive con- 
sumption of wars, there would soon be a general glut, and 
production must cease for the lack of a vent for its products 
What constitutes a market for any thing? This, that some- 
body desires the service thus offered, aud is willing to render 



PRODUCTION. 185 

a return service acceptable to the offeier. Only two things 
can limit the universal market, first, a lack of desires, and 
secondly, a lack of return services. But there can be no 
lack of desires at any time, and there will be th° greatest 
plenty of return services where production is most busy and 
most universal. Therefore, again, no general glut of prod- 
ucts is possible to occur. A truth which we have already 
seen in auother counection, re-appears here as a consequence 
of this proposition, and will re-appear again and again, 
namely, that all persons are interested commercially, as well 
as morally, in the prosperity of other persons, and each na- 
tion which has any thing to exchange, is directly interested 
in the prosperity of all other nations ; because the more pro- 
duction everywhere, the better market everywhere. A mar- 
ket FOR PRODUCTS IS PRODUCTS rX MARKET. 

But while no such thing as a general glut of products ever 
did, or ever can occur, a glut in respect to certain services 
is very common. Through want of foresight, or miscalcula- 
tion, particular services are offered in too great abundance, 
or of a kind not adapted to the demand, and in respect to 
these the market is truly said to be glutted. This frequently 
happens with editions of books ; more copies are printed 
than can be sold at remunerative prices. Also when fashion 
changes, the goods which were fashionable, but are so no 
longer, are apt to be in excess of the demand. The only 
precaution that can be taken to avoid losses of this charac- 
ter, is the cultivation of foresight, by studying as accurately 
as possible the nature of human desires, and the changes 
that have been observed to take place in them. This consti- 
tutes mercantile sagacity ; and the most successful producers 
in all departments are those who best develop this sagacit}', 
who adapt their services to the existing and coming demand, 
who, to excellence in the substance of their services, add 
taste and attractiveness to their form, who tend rather to 
to lead the fashions for the many than follow in their wake 
The field of production is like the billowy and heaving sea 



186 POLITICAL ECONOMY. 

to navigate most successfully requires foresight, a wise cour- 
age, a power of adaptation to varying circumstances, skill 
to veer and tack when the wind changes, and a will to run 
before a favoring breeze with all sails set. Production, as 
a general rule, is no dead level of monotonous exertion ; 
since its sphere is life with its wants, man with his desires ; 
and there is scope for the development of ingenious mind in 
almost all of its departments. Since all exchange is due to 
the diveisity of relative advantage, whoever develops his 
powers of observation, of application, of adaptation, to a 
higher point, and avails himself more skilfully of all pecul- 
iar facilities, will reap a larger share of the harvest of 
exchange. 

6. Let us next examine the immense increase of Produc- 
tion, and the superior perfection of products, consequent 
upon what has long been called the Division of Labor. This 
phrase is the title of the first and most famous chapter of 
Adam Smith's famous book, and has been more read than 
any other chapter, partly because it is the first and partly 
because it is the most interesting. The phrase was not well 
chosen to express what it has come in course of time to 
mean, and we must employ the terms in their broadest sense 
in order to make them useful in this connection. As used 
by Smith, they denote a specific part of the general truth 
with which we are now becoming familiar, namely, that 
exchange is stimulated and made profitable by all natural 
diversity of employments, by the application of all peculiar 
gifts to the corresponding obstacles that lie in the path of 
production, and by the use and familiarity in the use of all 
the gratuitous forces of Nature by means of implements of 
all sorts. He meant the dividing up of a process or employ- 
ment into particular parts, so that each person employed 
can devote himself wholly to one section of the process ; 
and his point was, that by means of this " division of labor " 
all the processes of production are vastly facilitated. He 
cites, as an illustration, the manufacture of pins. One man 



PRODUCTION. 187 

draws out the wire, another straightens it, a third cuts it, a 
fourth sharpens the points, a fifth grinds it at the top for 
receiving the head. The making the heads consists of two 
or three distinct operations, each confided to a single person. 
The remaining processes are similarly divided up, and the 
result is, according to Dr. Smith, that in a single establish- 
ment, employing onby ten persons, 48,000 pins are made in 
a day, while if each man went through all the processes him- 
self, he could hardly make twenty pins a day, or two hundred 
for the whole establishment. 

If Dr. Smith had lived in our day, and seen the operation 
of American machines in pin-making, he could have made 
his illustration far more striking. There are now 14 distinct 
processes instead of the 10 of a century ago ; the head is 
now r a part of the main wire, and not as formerly twists of a 
separate smaller wire, and is formed with wonderful rapidity 
by the Wright machine, that works automatically ; still more 
wonderful is the combination in one complex and yet simple- 
in-principle machine of this heading process with the straight- 
ening, cutting, and grinding processes ; and most wonderful 
of all is the machine worked by two children, one of whom 
foeds it with pins and the other with papers, by which the 
final process of papering is completed, the pins dropping by 
the million into the holes pierced in the paper to receive them, 
without a touch of a human hand. It has been calculated, 
that 18,740,800,000 single pins are made in the United 
States yearby, that is to say, 375 for each head of the popu- 
lation in 1880. 

Pin-making is comparatively a simple process, while watch- 
making is relatively a complicated one. It w r as put iu evi- 
dence before a committee of the House of Commons about 
the middle of this century, that there were one hundred and 
two distinct branches of the watch-making art, to each of 
which a boy might be put apprentice ; and when his appren- 
ticeship had expired, he was unable, without subsequent 
instruction, to work at any other branch ; and that the 



188 POLITICAL ECONOMY. 

watch-finisher was the only person, out of the one hundred 
and two, who was able to work in any other department than 
his own. American machinery has put watch-making upon 
a new plane. Several elaborate and extremely ingenious 
labor-saving machines are now in use whereby great perfec- 
tion of parts and accuracy of time-keeping are attained at 
a comparatively small cost. 

The causes of increased efficiency imparted to production 
by the division of labor are reduced by Dr. Smith to 
three : — 

(a) The improved dexterity, corporeal and intellectual, 
acquired by the repetition of one simple operation. 

(b) The saving of the time which is commonly lost in pass- 
ing from one species of work to another, and in the change 
of place, position, and tools. 

(c) The invention of a great number of machines which 
facilitate and abridge labor in all its departments. Because 
the simple task which complete division of labor gives to 
each operator is precisely what machinery may most easily 
be made to perform, and what the operator, if intelligent, 
will be most likely to devise machinery for. -Add to these 
advantages of the division of labor these other : — 

(d) The saving of the waste of material, partly as the 
result of this improved dexterity ; and frequently, also, as 
the result of the shorter time required to finish up the prod- 
uct. 

(e) The more economical distribution of labor by classing 
the operatives according to their strength, skill, and expe- 
rience. The easier parts may be performed by women and 
by children, whose labor is less expensive ; the ruder parts 
by ruder hands ; and only the more difficult processes by the 
most skilful workmen, who must be highly paid. Next to 
the first, this advantage is the most important. 

(/) There is a saving in tools. The various implements, 
being now in constant use, yield a better return for their 
original cost ; and therefore their owners can afford to have 



PRODUCTION. 189 

tbcm of a better quality, and this, too, facilitates produc- 
tion. 

(g) It brings the producers and consumers into more inti- 
mate and sale relations. The division of labor between the 
wholesale and the retail trade is of great advantage. The 
retailers know their local markets, and supply them without 
loss or waste from the wholesale reservoirs. The wholesale 
reservoirs neatly control the various streams of production, 
according as demand is slackened or intensified. Thus, for 
example, a large city is daily supplied with fresh meat, with- 
out the loss, perhaps, of a hundred weight. 

There are some disadvantages resulting from this division 
of labor : — 

(a) The work becomes in some departments monotonous 
and irksome, while some variety of occupation would afford 
relief by employing different muscles, or different faculties 
of the mind. 

(b) There is some tendency to dwarf the mental and cor- 
poreal powers, through exclusive attention to one part only 
of a complicated process. 

(c) When this part has been learned, and long made the 
means of a livelihood, a person has less power to adapt him- 
self to change of circumstances, and becomes too much 
dependent on the continuance of the business in that form. 

The degree to which the division of labor can be carried, 
depends in part upon the extent of the market, and in part 
upon the nature of the employment. To recur to Dr. Smith's 
illustration of the pins: if the market would only have 
received 2-1,000 pins a day from that establishment, instead 
of 48,000, the division of labor could not have been carried 
to the same extent, because if it had been, the men would 
be idle one-half the time. In that case, some of the men 
would be dismissed, and some of the separate processes be 
combined, and production would be less efficient from the 
limitation of the market. Production, therefore, w most 
profitable when the market is broad enough to allow a full 



190 POLITICAL ECONOMY. 

division of lalor, and complete empkyyment to all the opera- 
tives ; and, the market being presupposed, is moie likely to 
be profitable in large establishments than in small ; because, 
(a) the division of labor can be carried to a fuller extent ; 
(&) more perfect machinery can be afforded ; (c) relatively 
less superintendence is required ; and (d) the scraps and 
ends of a large business are frequently of sufficient impor- 
tance to justify one or more subordinate branches of busi- 
ness in connection with the main business. For example, a 
large saw-mill may profitably furnish lath as well as lumber, 
since the refuse boards and slabs may go to lath. A whole- 
sale butchering establishment of neat cattle might profitably 
have, in connection with the sale of meat, a tannery to dis- 
pose of the hides, a comb manufactory to dispose of the 
horns, a glue manufactory to dispose of the feet, a stall for 
the hair, which is useful in plastering, while the offal might 
be chemically disposed of in fertilizers. 

The nature of the employment also limits the degree to 
which the division of labor may be carried. Agriculture, 
for instance, allows less of this division than most other 
departments of production, because its various operations 
cannot, from the nature of the case, become simultaneous. 
When the sowing is once done, the producer must wait some 
months upon Nature, till his agency is again required in the 
reaping. This fact, that agriculture can be less facilitated 
by the division of labor, and by the use of machinery, than 
most other departments of material production, constitutes 
one ground of an important truth, which we shall hereafter 
perceive stands also on another and firmer ground, the truth, 
namely, that agricultural products tend constantly to rise in 
value as compared with other commodities. 

7. Opposed to free Production, and therefore opposed to 
progress and to comforts, are Monopolies. A monopoly, as 
the derivation of the word implies, is a restriction imposed 
by a government upon the sale of certain Services. A gov- 
ernment may properly restrict or even wholly prohibit the 



PRODUCTION. 191 

sale of any services that clearly threaten the public heulth or 
the public morals, because these are of higher consequence 
to individuals and the State than the pecuniary gains of any- 
body ; it is in this view that the United States forbid utterly 
the introduction from abroad of obscene books and pictures, 
and the States forbid the sale of tainted meat ; and when a 
nation has determined to raise a revenue from the sale of any 
commodity, as for instance tobacco, it may properly restrict 
the sale to its own authorized agents, or to those, who buy 
its licenses and stamps ; but outside these three exceptions 
in the interest of morals, health, and revenue, no government 
would seem to have the right or any adequate motive to 
restrict the sale of any thing. Monopolies become a public 
wrong and are justly denounced whenever they are iustituted 
for the benefit of a part, at the expense of another part, of 
Society. During long centuries the older governments med- 
dled with and vexed the freedom of production, at the 
instance of individuals and classes wishing to be arbitrarily 
privileged, and thus threw arbitrary burdens on other classes 
of the people, for example, by limitiug the number of ap- 
prentices to each artisan, by dictating what should and what 
should not be manufactured or grown, and by trying to fix 
what should and what should not be imported and exported ; 
but common sense has come to reign now for the most part 
within the limits of the individual nations, which perceive that 
riches and progress and power are dependent on free produc- 
tion within their own boundaries ; while common sense and 
perception are not yet enough enlarged to secure free produc- 
tion as between the different nations. Senior (p. 177) uses 
this illustration : When Napoleon brought half of West Eu- 
rope under French dominion, the previously existing custom- 
houses and toll-barriers of the interior fell as by a stroke 
and free trade became the rule between French, Dutch, Ger- 
mans, Italians, and Spaniards, — all indeed who were sub- 
ject to his sway; but when this vast empire was dissolved 
into its original independent kingdoms, each State was busy 



192 POLITICAL ECONOMY. 

to re-impose on itself the fetters which his powerful hand had 
broken, and the custom-houses shot up again around all the 
petty frontiers. Just as if the benefits of exchange depended 
in the least on the accident that the parties to it are subjects 
or citizens of the same government ! 

If we reckon those restrictions on sale by which the public 
morals and health are sought to be conserved and a public 
revenue secured a first and worthy form of monopoly, as 
tobacco has long been in France a close monopoly for reve- 
nue purposes, then the second and a most unworthy form 
may be illustrated by the monopolies of Queen Elizabeth. 
She called the power of granting patents of monopoly to her 
favorites " the fairest flower of her garden." The privilege 
granted was an exclusive right to deal in certain articles of 
common use, which of course limited competition in their 
sale, and raised artificially the value of whatever the . privi- 
leged few offered for sale. If the view be limited to these 
persons alone, monopolies would certainly seem to be advan- 
tageous ; but is it not fair to look also at the buyers of these 
monopolized wares? They are all obliged to pay more of 
their return service than is natural and just, since the only 
purpose in granting the patent was to raise values in behalf 
of the privileged. The English people did not like the work- 
ing of it. Towards the close of the reign the abuse of this 
power reached an intolerable height, and many of the most 
necessary articles of life, such as salt, iron, calf-skins, vine- 
gar, lead, and paper, were in the hands of patentees, and 
could only be bought at exorbitant prices. In 1601, the 
House of Commons met in so angry and menacing a mood, 
in consequence of this abuse, that Elizabeth was obliged to 
promise at least, that the monopolies complained of shoull 
be abolished. The famous Act of Parliament of 1624 de- 
clares that all monopolies, grants, letters patent for the sole 
buying, selling, and making of goods and manufactures, 
shall be null and void. This Act effectually secured the 
freedom of industry in England ; and in the opinion of ex- 



PRODUCTION. 193 

(•client authorities, has clone more to excite the spirit of 
invention and industry, and to accelerate the progress of 
riches in that country, than any other in the statute book. 
The Act excepts, however, patents for fourteen 3-cars to 
the true and first inventors of new manufactures within the 
realm, and also the grants by Act of Parliament to any com- 
pany, for the enlargement of foreign trade. Under this 
exception, the East India Company possessed, up to 1834, 
the exclusive right to vend tea in England. During the last 
years of this monopoly, and notwithstanding the quantities 
of tea smuggled into the country, the people of England 
paid more than $7,500,000 a year for their tea beyond the 
price at which tea of equal quality was sokh under a system 
of free competition, in Hamburg and New York. It is well 
worth notice, that monopolies never realize to their pos- 
sessors the full pecuniary advantage of which the public are 
robbed by their action. Thus, while Englishmen paid 
$7,500,000 extra annually for their tea, the Company, by 
their own showing, did not realize much more than half that 
sum from their privilege ; owing to the inertness of their 
servants removed from the stimulus of competition. "The 
spirit of monopolists," says Gibbon, " is narrow, lazy, and 
oppressive. Their work is more costly and less productive 
than that o\' independent artists ; and the new improvements, 
so eagerly grasped by the competition of freedom, are ad- 
mitted by them with slow and sullen reluctance." 

A third form of monopoly (also most unworthy) is that in 
which governments by restrictive duties try to exclude foreign 
competition in certain articles, leaving the domestic dealers 
open only to home competition. This is done in connection 
with, sometimes under color of, levying duties for revenue. 
Duties laid for this purpose, however, as we shall see more 
tally hereafter, arc very different in principle, amount, and 
action, from those properly laid for revenue. They violate 
a natural right of exchange, as the others do not. and are 
always followed by injurious consequences. Sometimes the 



194 POLITICAL ECONOMY. 

hope of unusual gains from producing an article whose for- 
eign supply is thus restricted, seduces capital and labor from 
other profitable channels and concentrates them upon this 
business ; and the home competition, thus artificially stimu- 
lated, becomes intense and feverish, the business is over- 
done, an element of distrust and unsteadiness is introduced, 
the weaker houses are ruined, and only the stancher firms 
tide over the depression consequent upon overdoing, and 
control the market for a while at a monopoly price. But 
the losses of home competitors ; the losses of those who 
would otherwise have been foreign competitors ; and espe- 
cially the losses of those home producers who would have 
exchanged products with those foreign competitors, overbal- 
ance many fold these gains. Sometimes, again, home com- 
petition is even less active after the imposition of such 
duties ; and then the manufacturers and dealers, relieved, 
in great measure, from the stimulus of competition, are less 
on the alert for improvements, less attentive to the quality 
of their goods, less compliant to their customers ; and the 
consumers are obliged, not only to pay a tax levied for the 
benefit of the monopolists, but also an additional tax on 
account of their want of enterprise and spirit. 

A fourth form of monopoly, and like the first a worthy 
one, is that involved in the granting of patent-rights and copy- 
rights. Society does well in protecting, by law, inventors 
and thinkers in the sole use of their respective productions 
for a limited time. Otherwise, men would have less motive 
(o think and to invent; since in that case only the public 
spirited and the rich would or could devote themselves to an 
important branch of the public progress. A patent or copy- 
right is merely a return service which society renders for a 
service received. It violates no man's right of property, as 
an ordinary monopoly does, but is a provision to protect for 
a time a new right of property created by the thought and 
efforts of deserving men. It has sometimes been improperly 
called intellectual property, in contradistinction from material 



PRODUCTION. 195 

property, because the right is not embodied in any outward 
thing, but remains a right only ; it is true, that Political 
Economy has not hitherto given to this whole class of valua- 
ble things the attention that is undoubtedly their due ; but 
we have already seen that any thing is property that can be 
bought and sold, and that simple rights are constantly bought 
and sold in the markets ; and it follows from all this, that 
patents and copyrights, which are a technical return-service 
for services ready to be rendered to the community, are at 
once proper and property, since they themselves also arc 
bought and sold. 

In the United States a patent lasts for seventeen years, 
and is not re-issued, except by a special act of Congress : 
i copyright lasts for twenty-eight years, and may be re- 
dewed by the author, his widow, or children, for fourteen 
/ears longer. 

A patented process is almost always the application in 
Aome new wa}* of a gratuitous force of Nature to some use- 
ful and valuable end. Through inventors, free forces are 
constantly harnessed to the use of Production. Services 
become easier, and therefore cheaper, in all directions. 
Take a case in illustration in which machinery can only be 
used in a limited degree, and in which hand-labor must 
always be a main element, namely, work in anthracite coal 
collieries : * the average increase of hands in these collieries 
in the United States from 1870 to 1880 was only 6.4 %, 
while the average increase of product in the same time was 
45 °/q. If then, patents stimulate inventions, and inventions 
lessen efforts and multiply results, patents are to be com- 
mended ; and it is a beautiful consequence of individual 
eagerness to invent, which is perhaps more common in this 
country than in any other, that all improvements in ma- 
chinery, all inventions, all substitution of Nature's force- Eoi 
human labor, soon become the common property of mankind. 
Patent rights speedily expire by their own limitation, secret 

1 Census of 18S0. 



196 POLITICAL ECONOMY. 

processes are sure to become known, and the competition 
of the different men who, under a system of freedom, will 
be sure to use these gratuitous helps, will compel each of 
them to sell their product at a rate graduated only by the 
actual human service rendered ; so that, the liberal gifts of 
Nature, though seemingly monopolized at first by ingenious 
men, are not long intercepted in their descent towards the 
masses of mankind. An invention of great merit even at 
first does not benefit the patentee alone ; as a patentee, his 
interest leads him to lower the price of his product, to bring 
it within the reach of a wider circle of consumers ; and so 
soon as the patent has expired, the benefit has at once a 
wider reach. The steam-engine, for example, has long been 
common property. There are, indeed, certain features of 
the more perfect engines still restricted in their manufacture 
by the rights of individuals, and this will always be so while 
invention continues busy, but the perpetual tendency in all 
inventions is from individual property towards a common 
right. And it is here in place to remark, that the applica- 
tion of machinery to all departments of production, and the 
introduction of improved processes of every name, can 
hardly in the first instance be prejudicial to any, and are 
sure ultimately to be beneficial to all. 

8. The natural laws of Production are inexorable in their 
operation. It is best for men to find out what these are, 
and then to conform to them their own economic action. If 
custom or legislation thwart these laws, they will take their 
revenge without pity, and lapse of time will only exhibit 
transgressors more clearly as firmly held in the grip of vio- 
lated law. Nature prescribes to men the way to reach the 
best economic ends, by giving to all a consciousness of 
rights and impulses to maintain them, though it must be 
owned that there are impulses, too, to infringe upon rights, 
and also by giving that common sense by which mistakes 
are perceived and a sound experience gained ; and the result 
of the play of all these for countless generations is expressed 



PRODUCTION. 197 

in such maxims as, Live and let live, A fair field and no 
favor, Honesty is the best policy, It takes two to make a 
bargain, and Laissez faire. Still, each generation shoots 
up a lusty crop of foolish and selfish men, foolish because 
selfish, and selfish because foolish, who think they know, how 
things had best be done, how Nature can be improved upon, 
and how those who trust themselves to them will be better 
off than if the}- trusted to their own sense of fair and right. 
Such men and their followers — " blind leaders of the blind " 
— so far and so long as the}' have their way, get caught in 
the meshes of laws as old as the creation, and the more they 
struggle to evade and escape, the more they show forth their 
own helplessness, and the magnitude and wisdom and power 
of the natural laws they have trampled on. 

An excellent illustration of all this is found in the state 
of the shipping of the United States in the year of grace 
1881, and in the contortions of the men who tried to justify 
the false system that had brought forth such fruits. It must 
be premised, that there were three things only which the 
citizens of this country were absolutely forbidden to buy 
from abroad, namely, obscene prints, drugs prepared to pre- 
vent conception or secure abortion, — and ships. The first 
two" were prohibited in the interest of morals, and that was 
right enough ; but why were free American citizens prohib- 
ited to buy innocent ships wherewith to sail the seas, if they 
found it for their profit to buy them? Why, nothing, only 
to encourage the same people to build ships of their own ! 
In order to have ships a plenty, and make it profitable to 
build them, the competition of foreigners in ship-building 
was wholly cut off by one of the first laws passed under the 
present constitution, that is, in 1789, to exclude foreign-buiU 
shijis from registry under the American flag ; and after 
almost a century of such continuous exclusion, during which 
native ship-building was not only "protected" hut y 
14 protected," since prohibition is the perfection of protec- 
tion, the fruits of such a system would certainly have time 



198 POLITICAL ECONOMY. 

to work themselves out. If such legislation were in accord- 
ance with the natural laws of Production, the results would 
be good ; if contrary to them, bad. Well, then, what was the 
state of ocean ship-building and ocean carrying, so far as the 
United States were concerned, in 1881? What had been 
that state for the two decades preceding ? Before answering 
this question in figures, we must premise also, that that ship- 
building had been carried on vigorously in this country for 
150 years prior to 1789, not only without any " protection " 
to encourage it, but also in spite of the unceasing hostility 
of the British Government towards colonial shipping ; how 
far all the arts of navigation had been carried here before 
the Independence, any oue may read iu Burke's famous speech 
on Conciliation with America ; and how far the products of 
the loom, the forge, and the anvil, were already exported 
on native ships to other countries, in spite of British legisla- 
tion, any one may see in Lord North's last proposals and 
concessions to ward off Independence. Probably ships 
could be built here as cheaply in money as in Europe till the 
middle of this century, and the main effects till then of 
the prohibition were the loss of a market for such native 
products as would otherwise have been sold against ships, 
and the loss of the stimulus of competition on our own 
ship-builders that would have accompanied free ships ; but 
in the twenty years after 1861, when a general protective 
system, with duties far higher than ever before, prevailed, 
it became practically impossible to build ocean ships in thia 
country on account of the protective duties on lumber, 
cordage, iron, steel, and other materials ; so that the free 
citizens of the United States, fond of the sea, found them • 
selves in a humiliating position, in which it was illegal to 
buy ships, and impossible to build them. 

What was the outcome of this dilemma ? The exports of 
the fiscal year ending June 30, 1881, were $902,377,346, 
of which only twelve per centum was carried away under the 
American flag, and 88 % under foreign flags. The imports 



PRODUCTION. 199 

of that year were §642,664,028, of which only $133,731,000 
were brought in by our own ships, and $491,000,000 wore 
brought in foreign vessels, and $17,933,628 came in on cars 
aud other vehicles. Of the total foreign trade of that year 
mediated by ships, very nearly 15 °f was by American ships. 
and 85 °f by foreign ships. According to the authority of 
Senator Blaine, our own ships carried in 1857 72 $, of our 
total foreign trade, leaving 28% to foreigners; in LS78 
these figures had become almost exactly reversed, less than 
28 % was native and more than 72 %, was foreign. This 
disproportion grew worse and worse, till, in 1881, the result 
above mentioned was attained. All this time protectionists 
were praising their system, though sorely perplexed by the 
results of it in ship-building, in which the S3"stem had been 
carried to its highest terms for the longest time. A vio- 
lated law of Production held them and the whole country 
in its grasp, and irrefutable figures growing worse from year 
to 3'ear exhibited in the face of the world their system and 
all its defences as refuges of lies. * The world of economic 
law cannot be cajoled, manipulated, and falsified. Causes 
will produce their effects, restrictions will end in scarcity, 
and the successful selfishness of a few will bring in wide 
disaster to the many. One of the odd things of that odd 
y<ar, 1881, was the ostentatious advertisement of a promi- 
nent protectionist firm of ship-builders on the Delaware, that 
they could aud would furnish iron ships as. good aud as 
cheap as those built on the Clyde ; which, if it were true, 
cut off all possible explanation of the decline of ship-build- 
ing on the ground of higher wages, or an}' other natural cir- 
cumstances of the country. Another odd thing of that year, 
was the bringing into New York harbor the obelisk, known 
as Cleopatra's Needle, by Commander Gorringe on a for- 
eign-built ship bought by him for that purpose, for which 
consequently he could not legally take out American papers, 
and which accordingly made the whole voyage home in the 
character of a pirate: any man-of-wai could have ovemauled 



200 POLITICAL ECONOMY. 

her at sea and taken her and the obelisk into port as a prize ; 
for the Dessong had no authenticating papers at all but a 
bill of sale. Still another odd thing of that year, was the 
publication at great expense by the government of special 
reports of our consuls in all parts of the world, set on foot 
by Mr. Secretary Evarts on purpose to facilitate trade be- 
tween this and other countries, while the general tariff of 
this country was expressly designed and constructed to pre- 
vent trade with other countries. 

The number of vessels plying between the United States 
and Europe in 1881 was 5,210, of which 555 were steam- 
ships. Of the sailing vessels the United States had in num- 
ber 19 %, though their tonnage was less than the average, 
while the little hyperborean kingdom of Sweden had 22 °f . 
Of the steamships 80 °f were British, and the United States 
had just four and no more. Between 1792 and 1881, by 
act of Congress of the former date, all foreign-owned ves- 
sels were excluded from the American coasting trade, and, 
consequently, coasters must be built at home, or coast navi- 
gation cease. Within monopoly waters, our flag floated ; on 
the free seas, it mostly disappeared. 

The great struggles of mankind in all history past have 
been around three points as centres : first, freedom of per- 
son ; second, freedom of opinion ; third, freedom of ex- 
change. In consequence of the struggle around the first 
point, personal slavery has now mainly disappeared from 
the earth ; in consequence of the struggle around the second 
point, the freedom of opinion, and especially of religious 
opinion, has gained great victories in all lands, although 
much remains to be done before its complete triumph is 
assured ; while, in consequence of the struggle around the 
third point, one barrier after another has been thrown down, 
one monopoly after another has been conquered, until it is 
pretty generally acknowledged at present that freedom of 
exchange is just as sacred as freedom of person and of 
opinion, and the struggle will certainly never cease until the 



PRODUCTION. 201 

liberty of contract and delivery, subject only to conditions 
of morals, health, and revenue shall be international and 
universal. 

If, in this chapter, attention has been more strongly 
drawn to commodities than to the other two classes of 
valuable things, it is not because the man who sells a mere 
effort is less a producer than a farmer or a manufacturer, nor 
because a banker, for example, is less a producer than either 
of them. It is because the principles are more readily seen 
and .simply illustrated in the production of material things. 
The same principles apply equally to mere labor and the 
^ale of intangible rights. "We can see their application to 
these, however, better at a later stage of our inquiries. 
Labor will be considered at length in the next chapter ; and 
Credit, which best represents the whole class of technical 
rights, will be fully treated still further on. In the mean 
time, the propositions of this chapter may be summarized 
thus : — 

1. Production is the getting something ready to sell and 
selling it. 

2. Production is immense in amount as measured by 
money. 

3. All production is facilitated by God's free gifts, and, 
accordingly, grows constantly easier. 

4. Production always depends on diversity of relative ad- 
vantage as beticeen the parties exchanging. 

5. The greater this diversity, the more profitable do ex- 
changes become. 

G. -Association, Invention, Freedom, are the grand condi- 
tions of Production. 

7. Inventions increase production, but tend to lessen the 
value of particular services. 

8. There can be no glut of general services. 

9. All production tends more and more to specialties. 

10. Exchanges should be free because they are naturcd and 
beneficial. 



202 POLITICAL ECONOMY. 

11. Monopolies, as a class, lessen production, and impede 
progress. 

12. The laws of Production are inexorable, and adequate 
for their own vindication. 

13. Governments are less guilty than formerly of curtailing 
exchanges. 



LAB OB. 203 



CHAPTER V. 

LABOR. 

Production is processes leading up to Value ; there are 
three essential elements in these processes ; and these are 
Labor, Capital, and Natural Agents. In all production 
these three conspire ; and we must now take them up one 
by one, and learn carefully how each acts alone, and in 
conjunction with the others. We take up Labor first, be- 
cause it is first in point of importance though not of time, 
since Nature always furnishes in some primary form that 
upon which and in connection with which Labor expends 
itself. Human desires are presupposed for whatever is 
produced, and the only other requisites of production are 
the three just mentioned, so that a full treatment of these 
will exhaust the subject. To recur to our strawberry-girl 
for an illustration, — Nature furnishes the wild strawberries 
free, she furnishes the Labor of picking and bringing them, 
and her tin pail is the article of Capital employed. Or to 
take an illusti'ation from the gold hills of North Carolina, — 
a bored log to divert the water from a mountain stream, and 
a tin pan in which to gather and wash the sand and gravel 
arc Capital, an old colored woman of the neighborhood is 
the Laborer, and the bits of gold scattered in the soil are the 
gift of Nature: gravitation also brings the water through 
the log, and gravity carries down the particles of gold to the 
bottom of the washing-pan, and many other agencies of 
Nature co-operate even in this very simple case of produc- 
tion ; and besides the log and pan, there are doubtless other 
forms of Capital, at least the whittled plug to stop at need 



204 POLITICAL ECONOMY. 

the flow of water ; and the labor is both physical and mental, 
since no animal could be trained to adapt means to ends 
like this negro woman. As Production passes from these 
simplest forms, each of its three requisites becomes more 
multiplied and complicated, but no new requisite is discov- 
ered. Labor in all its grades to the most elaborate is still 
labor, machinery in all its forms to the most ponderous is 
still Capital, and Nature in all her manifold agencies is 
nature still. 

Personal effort of any kind, put forth in view of a return- 
service and for the sake of it, is Labor. 

Effort that is not sold is not labor. Most persons put 
forth some efforts every day for their own direct gratifica- 
tion, which of course are not labor; and also some efforts 
for the direct welfare of others, for which nothing is ex- 
pected in return ; but every form of human effort exerted for 
another and for the sakq^f the pay is technically Labor. 
We sometimes speak in the way of contrast of physical and 
mental labor, according as body or mind seems the main 
factor in the exertion, though we must hold fast to the 
truth that both mind and body work as one in every act of 
labor. We may also make a rude distinction for the sake 
of convenience between common and skilled and professional 
labor, though no very sharp lines can be drawn between 
these, nor need be drawn. 

It is a curious thing, and one that draws after it important 
consequences, that what we call physical labor, and indeed 
all physical effort, consists in moving things. When a man 
works with his hands or his feet, all that he does or can dc, 
is to produce a series of motions or resistances to motion, 
because human muscles are only capable of producing motion 
and resisting motion. All the marvellous results of physical 
effort in all the world have flowed from so simple a matter 
as the contraction and expansion of muscle. Physical work 
is motion, and weariness is weariness of muscle. The world 
of materials is so cunningly constructed, that, when they are 



LABOR. 205 

moved into right position by the aid of capital, ilie powers 
of Nature do the rest, and objects of utility and value are 
the result. For example, when the woodman fells a tree for 
sale, he moves (labor) his axe (capital) through the trunk, 
and then the power of gravitation (nature) seizes the tree 
and brings it to the ground. The woodman brings a series 
of motions to bear upon the tree, but the final motion by 
which the oak comes crashing to the earth is the free action 
of nature. 

Let us take two other illustrations. "Wool, cotton, and 
flax, have by nature a certain tenacity of fibre. Man moves 
these fibres in certain relations to each other by an instrument 
called a spindle, and the result is thread. Then the threads 
are moved in certain relations with each other by an instru- 
ment called a shuttle, and the result is a web of cloth. The 
tailor moves his shears through the cloth, and then his nee- 
dles, and the result is a coat, — the object of utility for 
which all these processes were gone through with. The 
farmer first moves the ground, then moves his seeds into it, 
moves his sickle through the standing corn, moves his corn 
to the granary and mill, moves his meal from the mill to the 
larder, at which last point the housewife begins to operate 
upon it in a new series of motions. She moves the meal to 
the kneading-trough, and, having well moved it there, moves 
it to the oven, and, from the oven, after due interval, moves it 
to the table, beyond which point it is not needful for us to 
fo'low the process. 

Now, since motion is the only thing which man is required 
b: furnish in the production of commodities, he naturally 
looks around for helps in this matter. The first thing he 
lighted ou, as a help to produce motion, was the domestic 
animals. The ox, the ass, the horse, were doubtless domes- 
ticated in the very beginnings of society. Men want these 
animals to produce motion for them — simply that. And as 
they can be used in so many different places, and for Buch 
a variety of purposes, and are- so cheaply reared, they are 



206 POLITICAL ECONOMY. 

exceedingly convenient as a motive power, and will proba My 
never be superseded. The discovery and application of the 
great motive powers of water and steam have scarcely occa- 
sioned a lessened demand for the earlier and humbler motors, 
oxen and horses. Having employed from a very early time 
the domestic animals as a motive power, Labor secured aftei' 
a while as inanimate auxiliaries the water-wheel and wind- 
mill, and much later steam and electricity and other natural 
agents. It is a point that has scarcely been noticed, even 
if it has ever been noticed at all, that these auxiliaries, 
whether animate or inanimate, do but cause simple motions 
of the same kind as the motion caused by a human hand. 
The most ponderous engine merely reduplicates that which 
the arm of a child is capable of ; while in point of delicacy 
and firmness of touch, perhaps no machinery can subdivide 
and apply this motion so skilfully as the human fingers can. 
It is said that some of the lace made wholly by hand is finer 
and more delicate than any yet woven by machinery, although 
the introduction of machinery into lace-making has cheapened 
lace products in general to a small fraction of their former 
cost. What we commonly call Power, then, in whatever way 
created, is simple motion. But in order to subdivide motions 
and apply them to the various purposes of production, imple- 
ments of all sorts are needed, and implements, as we shall 
see fully in the next chapter, are always Capital.. Still, no 
Power however mighty or however delicate, and no forms of 
Capital however perfect, can ever dispense with Labor. Not 
until machinery can be taught to think will Labor cease to 
play a chief part in production. It is true indeed, that men 
are all the while throwing more and more of the burden of 
production off their own shoulders upon the ever willing 
shoulders of Nature, who is "good," to use a commercial 
term, for all she can be made to carry ; but the more natural 
agents through machinery do, the more there is for men to 
do in tending, overseeing, and distributing, so that labor is 
\n as great demand as ever-; just as horses and teamsters 



lab on. it) 7 

seem now as much required as before railroads and steam- 
mills came into use. At first blush, it would seem as if 
machinery were about to drive men off the industrial field ; 
even in agriculture, in which labor-saving implements can- 
not be used to the same extent as in factories, it is now pos- 
sible, instead of the manifold hand-motions of a previous 
paragraph, by means of the reaper and binder and thresher 
and mill-appliances and baker's facilities, " to direct every 
process in the production of bread, 1 so that not a human 
hand shall have touched the grain from the time it was 
planted until it is placed on the table of the family that 
consumes it ; " still, the making, repairing, and managing of 
the machines, and the handling of the vastly greater volume 
of materials and products, require doubtless more men than 
the old methods demanded. 

Besides what we have roughly called physical labor, which 
always has to do with motions and with commodities, there 
are the various forms of mental efforts put forth by men to 
satisfy the desires of other men and to secure some return 
service. These, which we may roughly also call mental 
labor, have little connection with motions or with commodi- 
ties, but are not on that account less useful or less valuable. 
Professional labor, that is, the selling of personal services 
separate from tangible things, depends on the same princi- 
ples, gives rise to the same phenomena, and is amenable to 
the same science, as all other selling. One man, as the 
violin maker, offers services in which a commodity inter- 
venes ; another, as the violinist, offers services in which no 
commodity intervenes ; each has gained in his own art a 
point of relative advantage as compared with other men, 
and these doubtless have gained some point of relative 
advantage as compared with them ; each, by the sale of his 
respective service, meets some desire of the buyer, and is 
paid on the same principle as the other. The violin-makes 
of Cremona, who sold his instruments for five hundred franea 

1 Edward Atkinson's Labor and Capital, p. 28. 



208 POLITICAL ECONOMY. 

apiece, was no more and no less a laborer, in the language 
of our science, than Paganini, who sold an hour's playing 
in the theatres for five thousand francs. 

Laborers, then, are a very large class, and include all 
persons, who, whether statedly or occasionally, put forth 
personal efforts in view of a returu service and for the sake 
of it. The Chief Justice of the Supreme Court of the United 
States, is, in the language of our science, just as much a 
laborer as the Irishman who is cutting sods in plain sight of 
my window at this moment ; and the annual salary paid to 
the one is just as much wages as the daily pay rendered to the 
other : the Irishman indeed is employed and paid by an indi- 
vidual, while the judge is employed and paid by the whole 
people of the United States, but that makes no difference 
between them as laborers and wages-receivers. Professor 
Walker in his elaborate and in many respects excellent 
" Wages Question" (pp. 10, 206, et seq.) denies the coinci- 
dence between the labor-class and the "wages-class," and 
while he distinguishes five different classes of laborers, he 
finds, after much painstaking inquiry and many exclusions, 
only one " wages-class," and that a comparatively small one. 
The scientific advantage of his distinction between the ' ' sal- 
ary-class" and the "wages-class," and of his many other 
distinctions in this connection, is not very obvious from our 
point of view ; and we shall regard the laborers-class and 
the wages-class as identical, inasmuch as personal services 
or labor ai 3 always put forth for the sake of the return ser- 
vice which is wages, although the same person is often at the 
same time a wages-giver and a wages-receiver in respect of 
different transactions, and although one return service or 
gross price may include wages, profit, and price proper. If 
a man sell a commodity as such for money, the return is its 
price; if he sell a personal service as such, the return is his 
ivages; and if he sell the use of a credit-right or any form 
of capital, the return is his profit; but it often happens, as 
with a merchant selling goods over his own counter, that the 



LABOR. 209 

ptice of the commodity includes present wages of the seller 
and the current rate of profit on the capital involved. The 
merchant is laborer and capitalist at the same moment in 
relation to the same commodity, and receives in its price his 
return for effort and abstinence in both capacities. Even 
Walker's small class of wages-takers are also at times indi- 
vidually wages-givers. The commonest da}- laborer is often 
a wages-payer too, since he must have his doctor when sick, 
and, if a church-goer, contribute something to his preacher 
or priest for his support. There is no class of wages-takers 
only, and no class of wages-givers only, and it seems simpler 
and better to regard all persons as laborers so far forth as 
they render personal services for pay, and to regard even 
the same persons as capitalists and all others so far forth as 
they yield the use of valuable things for further production. 
Having seen what labor is, and who laborers are, we turn 
now to the considerations that determine in general the value 
of labor, which is wages. Now, it is easy to see by a little 
introspection and observation, that the value of labor in all 
its various grades depends on the same great condition as 
the value of commodities and of claims, namely, on recipro- 
cal demand. Desires and efforts rule here as everywhere 
else within the sphere of Exchange. The laborer in every 
grade from the hod-carrier to the President is able to sell his 
service, because there is somebody else who wants that par- 
ticular service and is willing to render in return what the 
laborer wants. The labor-giver works for a reward, and the 
labor-receivi r finds his return for that reward in the labor 
itself. This reward is wages, whether received in money ur 
in any other valuable thing. The value of the labor is the 
wages, and the value of the wages is the labor. It is the 
old case over again. It is a true and free exchange. Soci- 
ety is so constituted — it always has been and always will 
be — that most persons, either in their individual or in their 
collective capacity, require the personal service of others, 
and are able to render a satisfactory return service. 



210 POLITICAL ECONOMY. 

Now, since desires and efforts determine the value of labor 
just as they determine the value of every thing else, and 
since first principles really control every thing, because 
chance effects happen now on one side and now on the 
other, and leave the great working forces unaffected, it is 
important to notice that laborers, in order to be sucessful 
as such, must study the desires of the labor-takers, and 
adapt their service to the wants of those from whom their 
wages are to come. This is the first and most important 
point in the doctrine of wages. The more perfectly the 
desires of wages-payers are met on the part of laborers, the 
higher, so far forth, will be their wages and the more secure 
their employment. The wise laborer is he who studies his 
market, who adapts his effort to present and prospective 
wants, who makes himself necessary to his employer by the 
excellence of his service. That laborer will be the last one 
discharged. That laborer's high wages will not be grudged 
by the payer. It is, then, the demand for labor, that is, the 
desires of men which the personal service of other men can 
fill, that is first in order in a discussion of wages. These 
desires are originally very various, and they become more 
varied and sensitive as civilization advances ; they become 
exacting and precise within many branches of industry ; and 
they become scrupulous within many fields of personal grati- 
fication. Hence, intelligence and skill and patience and moral 
character are required in successful laborers of all grades. 
These desires are to be met, if at all, by an intelligent adap- 
tation to them of personal services. Political Economy, ac- 
cordingly, calls on its toilers, not for muscular exertions 
only, but for mental activities also, and for the moral virtues 
as well, that the toilers may meet the wants of even the most 
fastidious, and receive their reward. It calls for the trained 
eye, the skilful hand, the willing and waiting effort, the com 
prehension that sees what is needed, and the honesty that 
keeps uothing back. Economics are far enough from being 
materialistic : they are both human and humane. 



LABOR. 211 

"While the demand for labor is first in order as determining 
wages, the supply of laborers is correlative with that as the 
next most important clement. The value of labor, the value 
of commodities, and the value of claims are each controlled 
by the grand law of Demand and Supply ; and it is now our 
task to indicate some of the causes that affect the law of 
demand and supply of labor, and thus indirectly affect the 
law of wages. So far as the supply of labor is concerned, 
the first interest of every laborer is to be able, so far as il 
is possible, to furnish a service peculiar to himself and better 
than anybody else can furnish. Instead of herding with 
other laborers of the same general grade, and being content 
with rendering a service averaging with theirs, his cue should 
be, to be able to do something better in some respects than 
any of them can do it. So he is sure just to meet the want 
of some wages-payer. So as a laborer he stands on his own 
legs, and so far foi-th is able to dictate his own wages, that 
is to say, to sell something peculiar to himself to another 
who prizes its quality. The more the laborer can put into 
his service something that is unique in the way of excellence, 
the more sure he is of constant and remunerative employ- 
ment, partly because he is sure to find somebody who wants 
such a service, and partly because he is exempted from the 
compel ition of others less acceptable than himself. This 
point has been, perhaps, more often illustrated in the higher 
grade of professional labor, as in the case of John Sartain, 
the engraver, Charles O'Conor, the lawyer, and Meissonier, 
the painter ; but the opportunity of this advantage is open to 
every laborer in every grade of effort ; and there is no other 
thing so important to the welfare of the laboring class as that 
each laborer shall feel that he is one by himself, tbat his 
service is, and is to be, his own to sell, and that he is bound 
to make it in some way different in excellence from that of 
his competitors. For example, a courteous laborer is always 
preferred to a rude one, a conscientious to an unprincipled 
one, a skilful to an awkward one, a steady to a restless one, 



212 POLITICAL ECONOMY. 

a coi dented to a dissatisfied one, one interested in his work 
to make it betier to one who already thinks he knows it all. 
This point bears intimate relations to the supply of laborers ; 
and, were it attended to, as it might be, by all laborers, 
would make their competition for employment a different 
thing from what it is at present; it would give such an 
individuality, such a variety, such an excellence, to personal 
services, as would adapt them to the almost infinitely varied 
market, and take away the curse of conglomerated competi- 
tion. 

A rude classification of labor may be made into common, 
skilled, and professional labor. Common labor is that which 
can be acceptably performed by an ordinarily competent per- 
son after a little practice and instruction, without any thing 
corresponding to an apprenticeship as a preliminary. Farm 
laborers, railroad laborers, 'longshoremen, teamsters, por- 
ters, miners, and many more, belong to this class. Wages 
are usually the lowest and steadiest in this class, because, 
owing to the ease with which the class can be recruited at 
any time from growing boys and immigrating foreigners, the 
supply is kept constantly large relatively to the demand. 
Skilled labor, namely, that of those who have had to pass 
through something equivalent to an apprenticeship in order 
to be able to offer their services, presents some points of 
difference from common labor. In the first place, their 
numbers are fewer, because comparatively few parents can 
afford to give their children the time and the money needful 
for them to learn a trade, or to become skilful in any art 
requiring education ; and, as a result of this, their wages will 
rule higher than common wages, because the press of compe- 
tition will be less felt among them, and because, being more 
intelligent and consequently mobile, they can better insist 
on their claims, and can better distribute themselves to 
points where their services are in demand. In the second 
place, they are more likely to be subject to a strong demand 
than common laborers are, on account of the close cornice- 



LABOR. 213 

tion of their labor with special accumulations of capital. 
Professional labor is the highest form of personal -services 
rendered for pay, because it involves the most of time and 
expense in the way of preparation, because it is most often 
connected with high natural abilities and genius, and because 
for these reasons it receives the highest remuneration, or 
wages. 

It is not pretended that sharp lines can be drawn between 
these three kinds of labor, nor indeed is it needful in any 
discussion of wages. We mean by professional labor the 
services of those who have received a technical education, 
— something more than an apprenticeship, — expressly to fit 
them to render these sen-ices, and who have the requisite 
character, talents, and genius to enable them to succeed. 
Clergymen, physicians, lawyers, literary men, artists, actors, 
and many more, render professional services loosely so called. 
The obstacles at the entrance to this path occasioned by the 
lack (1) of appropriate natural gifts, or (2) of the requi- 
site industry and character, or (3) of the means of a suitable 
education and training, practically exclude so many persons, 
that the competition in the higher walks of professional life 
is not such as to prevent a large remuneration for services 
rendered. The demand for these is often peculiarly intense, 
as well as the supplj T peculiarly limited. When great interests 
of property, of reputation, or of life are at stake, it is felt 
that the best men to secure these must be had at almost any 
price. Fees and rewards for services of great delicacy, of 
great difficulty, or great danger, are paid by individuals and 
corporations and nations without grudging. Comparatively 
few men reach a high point of excellence in their respective 
professions, and they have in consequence a natural monopoly 
in these fields of effort, and receive for their labor a very 
high rate of wages. 

For example, Daniel Webster could demand a fee of Si ,000 
for making a single plea in court, P&ganini a like sum for an 
hour's playing on a violin, and Jenny Lind at least as much 



214 POLITICAL ECONOMY. 

for an evening's singing in a concert, because there was in 
each case a strong demand for a peculiar service aud only 
one person in the world who could render that service in the 
^ircumstances to the same perfection. The demand was 
strong, the supply was small, and the value consequently 
great. The highest efforts of professional skill will always 
receive a high reward, whenever there is one person even, 
who, together with a strong desire for the product, has also 
the'power to give a service in return ; and especially when- 
ever there are many persons who have a similar desire and 
power, to whom, as in the case of Paganini and Jenny Lind, 
the service can be rendered in common without lessening the 
satisfaction of each individual. That the supply is small in 
these higher regions of skilled effort, is due partly to the 
fact, that Nature is not lavish in her gifts of peculiar talents, 
and partly to the fact, that those who have received have 
assiduously cultivated them, and have reached in consequence 
a high point of relative advantage. These persons have what 
may be called a natural monopoly in their respective fields of 
high effort, because there are few others who have the natural 
gifts and the acquired skill which enable them to come in 
competition with them. But the objections which lie with 
such force against artificial monopolies, cannot be urged at 
all against a natural monopoly ; for, if the road to excellence 
be open to all, and no artificial obstructions thrown in the 
paths of any, there is no blame but rather praise for him 
who distances all competitors, and demands for services of 
peculiar excellence a large remuneration. Exchange rejoices 
in all diversity of advantage that is the birth of freedom, 
but reprobates with all her force advantage that is gained 
by artificial restrictions, because artificial restrictions always 
infringe on somebody's right to render services for a return ; 
and the right to render services for a return is the fundamental 
conception in the right of Property. 

Within this great law of Demand and Supply, now sketched 
in outline as applied to the value of labor, that is, to wages, 



LABOR. 215 

there are a number of minor principles, which go (o vary the 
wages of all these three kinds of labor, mainly through tluir 
action on Supply. We will now consider these, before pass- 
ing to the discussion of what constitutes much of the Demand 
for labor, which is a topic closely connected with Capital, 
the subject of the next chapter. Several of these principles 
were mentioned by Adam Smith, and in connection with them 
we shall present others of no less importance. 

1. The agreeableness or disagreeableness of the employ- 
ments will have an influence in determining the rate of wages 
paid to those who engage in them. The more agreeable em- 
ployment will attract the larger number, and will experience 
in consequence the press of competition, and the rate of 
wages will be lessened by the increased supply of laborers. 
The more disagreeable employment will feel less the press- 
ure of numbers, and will secure, other things being equal, 
a higher rate of remuneration in consequence. Among the 
elements which, in spite of the diversity of natural tastes, 
make any employment agreeable or disagreeable to the 
laborers, are (1) the less or greater exertion of physical 
strength required, (2) the healthfulness or unhealthfulness 
of the labor, (3) its cleanliness or dirtiness, (4) the degree 
of liberty or confinement in it, (5) the safety or hazard of 
the employment, (G) the esteem or disrepute of it in public 
opinion. To illustrate each of these in order, the stone- 
mason, the glass-blower, the scavenger, the factory opera- 
tive, the worker in a powder-mill, the smuggler, will each 
receive a larger compensation owing to the peculiar element 
of disagreeableness involved in his empk>3'ment ; and he will 
be able to demand and secure it through the action of the 
disagreeableness upon the supply of such laborers. Of all 
these elements, public opinion is perhaps the most opera- 
tive ; and if this be favorable to an employment, and some 
social consideration be attached to it, and only common 
qualifications be required for it, the wages in it will infalli- 
bly be low. This is probably the main reason why so many 



216 POLITICAL ECONOMY. 

young women prefer to teach, rather than be employed in 
mills, shops, or offices, and why the wages of female teach- 
ers are so pitifully low ; although each of the elements of 
agreeableness specified above may also contribute something 
towards the same result. If a business be decidedly op- 
posed to public opinion, it must hold out the inducement of 
a large reward, or nobody will engage in it. This explains 
the abnormal gains of the slave-trade, the liquor-business, 
of gambling-houses, and of lotteries. 

2. The easiness and cheapness, or the difficulty and ex- 
pense, of learning different employments, will have an influ- 
ence on the rate of wages paid in them. The more quickly 
and cheaply one can learn to perform the duties of a place 
satisfactorily, the less, so far forth, will be his wages; be- 
cause there will be many who will compete with him in ren- 
dering such services ; the more time, difficulty, and expense 
involved in learning a business, the larger, so far forth, will 
be the wages secured by it ; because fewer persons have the 
means, the foresight, the patience, to prepare themselves 
for such a vocation. This is the principal ground of the 
difference in the wages of skilled and unskilled labor. The 
artisan has, at least, given time, and the professional man 
has given both time and money, to fit themselves to render 
the services which they now offer to society ; and it is right, 
therefore, for them to demand a higher rate of compensation 
than is accorded to operatives and common laborers. But a 
right to demand does not always carry along with it an abil- 
ity to secure : in this case it does, through the reduction of 
numbers which these obstacles at the entrance occasion, and 
the consequent weakness of competition. To put a boy 
apprentice to a trade, requires on the part of the parents 
a foresight, an ability to get on without his immediate help, 
and sometimes an amount of money for his board and 
clothes, which all parents do not possess ; and consequent^, 
the number of skilled artisans, who must learn when they 
are young if at all, are relatively few compared with common 



LABOU. 217 

laborers, and arc able to realize a much higher rate of wages 
than they. In the professions, if we confine our attention 
to those persons who are thoroughly trained for them, we shall 
find a higher rate of compensation still, and one made higher 
on the same principles ; although we must here bear in mind 
the counter-working influences which tend to increase the com- 
petition in the professions, namely, the respectability which 
attends them v the desire of knowledge for its own sake which 
is gained in connection with them, the instruction wholly or 
in part gratuitously offered to those in course of preparation 
for them, and the desire to do good, without regard to pecuni- 
ary reward, which actuates many who enter upon them. 

3. The constancy or inconstancy of employment is a con- 
sideration that affects wages. If the employment be such 
that it can only be carried on during nine months of the 
year, the wages of the day or month will be greater than 
they would be if it could be carried on during the twelve 
months. The laborer looks to the aggregate earnings of the. 
year, and will hardly take up a trade which affords emplo}'- 
meut but a part of the time, unless some compensation can 
be found in the higher wages for that time. This is the 
chief reason why the day's wages of the mason and the 
house-painter, in this climate at least, are higher than those 
of the carpenter or smith. The coachman, also, may stand 
by his horses half the day or night, with no call for his ser- 
vices, and must have, therefore, a proportiouably higher fare 
from those -whom he does transport. In general, it is found 
that men prefer a constant employment with a lower rate 
of wages, than an inconstant one, with a prospect of higher 
pay for the particular jobs actually done, and because they 
prefer that, those who take up with the other are able to 
secure a higher rate of pay in their less eligible vocation. 
Counter working this, however, are the desires which many 
rm-n have, for intervals of leisure in their business ; and tin 1 
opportunity to make these intervals subservient t<> anothei 
branch of business or means of livelihood. 



218 POLITICAL ECONOMY. 

4. The amount of trust involved affects wages. Men in 
responsible positions secure a higher rate of pay for then 
services than can be accounted for, except by a reference 
to the unwillingness of people to intrust great interests to 
others, unless they are men of established character for 
probity. Such men, men who combine all the other requi- 
sites for an important post, with a well-known honesty, are 
comparatively rare ; and, when they are found, will receive 
a very high compensation for their services. Treasurers of 
corporations, cashiers of banks, and holders of trust-funds 
generally, are examples in point. Such men are commonly 
obliged also to find responsible bondsmen, who will legally 
guarantee the correctness of their proceedings ; and only 
men of well-tried character can usually procure such pecu- 
niary guaranties. Shall we say, then, that men offer their 
honesty in the market, as they offer their skill, and are paid 
for the one as for the other ? No ! Their skill has been 
acquired to sell, and for no other reason ; but their honesty, 
if it be genuine, has another basis altogether ; and he who 
is honest, simply because honesty is the best policy, is not 
honest at all. The very characteristic of honesty is that it 
cannot be bought! It has a moral, and not a mercantile 
foundation. In point of fact, a man who has the full con- 
fidence of his fellow- citizens, as an honest man, and at the 
same time all the other qualifications requisite for a post of 
high pecuniary trust, is in position, partly on the ground 
of his honesty, to render a high service, and will receive 
for that service a high reward ; but let us all protest, in the 
name of morals, against the notion that honesty is a mar- 
ketable article : it is rather an underlying element of moral 
character, which fits men indeed to render certain ser- 
vices, but the honesty is maintained, not for the sake of 
the service, but has an independent basis of its own. So, 
also, most people would prefer a deeply religious man for a 
preacher and spiritual guide, but it is a perversion of lan- 
guage to maintain that in rendering these services a clergy 



LABOR. 219 

man sells his religion. It is true that he sells services to 
the appropriate rendering of which his personal piety con- 
tributes one element ; but the piety is not nourished for the 
sake of the services, but for its own sake, and it must not 
be confounded with that which is sold. Accordingly, while 
the clergyman's vocation is sacred, and belongs to the sphere 
of religion, his salary belongs to the sphere of exchange, 
and its determination is wholly a business transaction. This 
distinction ought to be better understood than it is ; and 
both clergymen and people need to be reminded that the 
spiritual things belong to one sphere, and the carnal things 
to another. The amount of a clergyman's salary, and the 
time and mode of its payment, are matters of pure business ; 
and the clergyman himself is to blame if he does not attend 
to them, and insist on them, on business principles. 

5. The probability of success in any employment is a cir- 
cumstance that has some influence on the rate of wages paid 
in it, through the action of this probability on the numbers 
of those who enter upon it. If success be doubtful, fewer 
will engage in such a business, and those who do engage 
in it and succeed, will reap a very high reward. Ten boys, 
for example, put to the blacksmith's trade, ordinaiy capa- 
city being presupposed, will probably every one succeed in 
becoming a tolerable workman ; but of ten boys of the same 
capacity put apprentice to an engraver, probably not over 
three would ever reach any high degree of skill and success ; 
and therefore, the pressure of numbers will be felt much 
more in the former than the latter art. So also, those who 
take jobs by contract, and who consequently assume some 
risks, arc usually paid at a higher rate than those who do work 
by the day. It is true that this is owing partly to the fact 
that the contractor commonly uses his own capital, and must 
therefore be paid profits as well as wages, and also that the 
wages of superintendence arc due to him as well as ordinary 
ireges ; still there is a residuum of difference which can onlj 
bo accounted for by the risk he ruus of a successful issue. 



220 POLITICAL ECONOMY. 

The difference in wages from this fifth cause of variation, 
would be greater than it is, were it not for the overweening 
confidence which many men have in their own good luck. 
This confidence is seen in the rush which is always made for 
newly discovered mining regions, and in the facility with 
which even yet lottery tickets are sold. It is demonstrable 
beforehand on the doctrine of chances, that no person can 
rationally buy any lottery ticket at its advertised price, 
because if that person should buy them all he would cer- 
tainly lose money, since the sum of the prizes is always less 
than the sum of the prices ; and yet people still buy lottery 
tickets in spite of the demonstration ; and the bitter expe 
rience of the most in California and at Pike's Peak, at Lead- 
ville and Deadwood, taught too late how excessive was the 
confidence in their own success of the masses who flocked 
to those new El Dorados. Besides this excessive confidence 
in individual minds, there comes occasionally a general 
movement in whole communities towards overconfidence in 
commercial enterprises of all sorts, and this is always fol- 
lowed by a season of depression called a commercial crisis, 
which can only be thoroughly understood after we have 
studied Money and Credit. 

6. Custom, prejudice, and fashion, have something to do 
with deciding the rate of wages in certain departments of 
labor. In former times and in the older countries custom 
was largely appealed to as helping to determine, for exam- 
ple, the current fees of lawyers and doctors, competition 
coming in to decide how many such fees a man should get, 
rather than the amount of each particular fee ; also, the 
shares of the produce going respectively to the agricultural 
tenant and to the landowner ; but competition, so far as 
rates of wages are concerned, seems now to be breaking 
down custom or usage in all directions, and will soon per- 
haps reign supreme over the economic field ; while, in cer- 
tain other matters relating to land and trade, custom seems 
to be hardening into law, as, for instance, the famous Ulster 



LABOR. 221 

Right. Prejudice is closely allied to custom, and jas some 
voice still in adjusting wages, as may l>e seen in women's 
wages crowded down to a point unreasonably low as com- 
pared with the wages of men, and also in the rate of John 
Chinaman's wages in those parts of the United States where 
he ventures to offer his services in the teeth of public opin- 
ion. Custom and prejudice may yield the held, but fashion, 
which is one form of competition, will always have an influ- 
ence over wages. They who lead the styles in any depart- 
ment whatsoever, will always offer their services to society 
at an advantage to themselves, and their rate of compensa- 
tion will be legitimately higher than the average rate of theii 
fellows, of which a good instance was the marked worldly 
prosperity about 1880 of Worth, the man-milliner of Paris. 
7. Legal restrictions and voluntary associations are another 
cause acting on wages, by acting on the supply of laborers. 
Laws inhibiting or promoting immigration, laws appointing 
the fees and salaries of officials, tariff laws, whether pro- 
hibitory or only restrictive, unequal taxation, and so on, 
all have an agency in adjusting wages. Governments are 
coming, however, much more freely than formerly, to leave 
every thing except the wages of their own sen-ants, and 
those things which they choose to tax, to the simple and 
safe action of supply and demand. The guilds of the Mid- 
dle Ages, and the trades' unions of our own day, are exam- 
ples of voluntary associations for the sake of regulating the 
wasres of the members by combined action. The restrictions 
in the old guilds, limiting the number of apprentices to each 
artisan, determining; the time a man should serve before lie 
could become a master, and so on, were very onerous, and 
have mostly passed away. The trades' unions of the pres- 
ent day cannot be commended, because they tend to destroy 
the freedom of personal action, and bring all workmen to 
one level of wages. The spirit of Political Economy, which 
is the spirit of freedom, is against such associations for such 
purposes. If any man has a service to render, let him 



222 POLITICAL ECONOMY. 

offer it freely, and make the best terms he can with whoever 
wants it. 

8. The mobility of laborers, or the lack of it, acts on 
wages by affecting the supply of laborers at any place. In 
some countries, notably in the United States, laborers move 
from place to place with considerable f acilit}' under the action 
of demand for labor. According to the United States Census 
of 1870, 7,500,000 of the native population dwelt in other 
States than those in which they were born. Many of these, 
doubtless, had left their native region to obtain more fertile 
land, and many also to obtain more remunerative employment. 
The native American, more than most other persons, is not 
only willing to move from place to place in the hope of better- 
ing his condition, but is also willing to change his occupation 
from time to time in the same hope. There is more freedom 
of movement locally, and less fixedness of occupation on 
the part of laborers and others, in this country than in any 
other industrial country. Even foreign immigrants here, — 
factory operatives, miners, and other laborers, — seem to 
catch after a while the spirit of the country in both these 
respects. There is one great advantage in all this, namely, 
competition becomes more uniform in all places, an unusual 
demand for labor at any point is easily met, and wages 
neither rise so high nor fall so low at special points as they 
otherwise would. But there is a disadvantage also, namely, 
the service of laborers floating locally or changing the kind 
of their labor can never be so excellent as service more 
steady in place and time. In Europe, on the other hand, 
laborers are far less mobile than with us ; and in Asia still 
less so. There is said to be no country in Europe in which 
the proportion of foreigners to the native population exceeds 
three per centum. In England, which is a small country, 
the difference in wages between the northern and southern 
counties is very marked. Professor Fawcett is authority 
for the statement, 1 that an ordinary agricultural laborer 

1 Political Economy, p. 167. 



LABOR. 223 

in Yorkshire, during the winter months, earns thirteen shil- 
lings a week, while a "Wiltshire or Dorsetshire laborer, doing 
the same kind of work during the same number of hours, 
earns but nine shillings. The contrast between the wages 
of English agricultural laborers in general, and the Mages of 
those employed in mills, mines, and furnaces, is still more 
striking. Competition is by no means perfect in distributing 
commodities so as to make their price uniform in the same 
country, or even in the same county ; but the immobility of 
labor, for an obvious reason, is greater than the immobility 
of goods. While labor should be free to go wherever it may 
be in demand, the natural reluctance of most men to leave 
their native haunts, enables each nation to work out its 
chosen ends without wholesale interference from abroad. 
If China should precipitate itself upon the United States, or 
India upon England, as the mere economical impulse might 
indicate, it would be disastrous to the western nations ; but 
Providence holds one impulse in check by a stronger one, 
and Political Economy deals with men as they are, and with 
exchanges as they actually take place, all things being con- 
sidered, and not as they would be were competition in all 
directions abstractly perfect. 

9. Lastly, we must note the influence of casual events 
upon wages, as these events affect the supply of laborers. 
For example, in 1348,* a terrible plague, called the Black 
Death, invaded England, and swept away more than one-half 
of its population. "• Even when the first burst of panic was 
over, the sudden rise of wages consequent on the enormous 
diminution in the supply of free labor, though accompanied 
by a corresponding rise in the price of food, rudely disturbed 
the course of industrial employments ; harvests rotted on 
the ground, and fields were left unfilled, not merely from 
scarcity of hands, but from the strife which now for the first 
time revealed itself between Capital and Labor." 1 The 
landowners of the country districts and the craftsmen of the 

1 Green's Short History of the English People, p. 769. 



224 POLITICAL ECONOMY. 

towns, not understanding the law of wages, were scandal- 
ized by what seemed to them the extravagant demands of 
the new labor-class. Parliament, as if there were no natural 
law regulating such things, enacted as follows : " Every 
man or woman of whatsoever condition, free or bond, able 
in body, and within the age of threescore years, and not 
having of his own whereof he may live, nor land of his own 
about the tillage of which he may occupy himself, and not 
serving any other, shall be bound to serve the employer who 
shall require him to do so, and shall take only the loages 
tvhich were accustomed to be taken in the neighborhood where 
he is bound to serve two years before the plague began." 
The next year, the price of labor was sought to be fixed by 
act of Parliament, and the labor-class, already partly eman- 
cipated, was once more tied to the soil. Afterwards, the 
runaway laborer was ordered to be branded on the forehead 
with a hot iron, and the harboring of country serfs in the 
towns was rigorously forbidden. All these acts of Parlia- 
ment, and many more of the same kind, were powerless to 
keep down wages to the old standard, but were powerful to 
keep up ill-blood and social discontent. They prepared the 
way for agitators like John Ball, for the poet-agitator William 
Longland, and for the Peasant Revolt of 1381. John Ball's 
famous rhyme condensed the scorn for the nobles, the long- 
ing for just rule, and the resentment at oppression, of the 
peasants of that time, and of all times : — 

" When Adam delved and Eve span, 
Who was then the gentleman ? " 

The first great poet of the Poor, William Longland, in bis 
Vision of Piers Ploughman, saw clearly enough that as 
population rose again to its normal height the high wages of 
the post- plague period would pass away: — "I warn j r ou, 
workmen, win while ye may, for Hunger hitherward hasteth 
him fast." Still, a hundred years after the Black Death 
the wages of an English laborer ' ' commanded twice the 



LABOR. 225 

amount of the necessaries of life which could have been 
obtained for the wages paid under Edward the Third." 
Another instance of a similar kind was seen during the late 
civil war in the United States, when the large enlistment 
into the northern army, of farm-laborers and factory-oper- 
atives, brought about such a sharp increase of wages on 
farms and in the mills, that at last the mill-owners, in this 
vicinity at least, closed their doors against the recruiting 
officers, partly because of the rise of wages consequent on 
the enlistments, and partly because their manufacturing was 
then too profitable to be endangered by a prospective lack of 
hands. So it is. " Scarce is ever costly." 

Now, then, on the other hand, we must pass to discuss the 
facts and principles connected with the demand for labor. 
As we have seen, Demand is not mere Desire, but desire 
coupled with the ability to render return services. The de- 
mand for labor, therefore, cannot be unlimited. The power 
to render and receive services in exchange, though vast, is, 
considered in reference to one generation of men, strictly 
limits d, because the physical and mental powers of nun, 
to say nothing of the powers of the physical earth, are lim- 
ited. There may be an increase, but there must be a limit. 
The demand for labor, too, is limited by the demand on 
the part of the same persons for commodities and claims. 
These latter must be paid for, and that leaves so much less 
to pay for labor. Wages, therefore, cannot rise indefinitely 
for another reason than the probal ie increase of the supply 
of laborers. All labor is offered over against some denial id 
of other men, and wages are the response to that appeal. 
Accordingly, it is easy to point out what is the maximum 
of all wages possible to be paid at any one time : it is the 
point at which the labor-takers will sooner forego some of 
the labor received than give any more for it. It is easy also 
to point out what is the minimum of aggregate wages at 
any one time : it is the point at which the "labor-givers will 
sooner forego some wages altogether than take any 1 



226 POLITICAL ECONOMY. 

Between these two extremes marked out bj the intensity of 
the demand on both sides, the current rate ( f wages in each 
of the greatly varying departments of effort, and the aggre- 
gate amount of wages in all departments of effort, will fluc- 
luate back and forth according to circumstances. 

Pei sons who put forth a demand for labor, in distinction 
from a demand for commodities and claims, may be divided 
into two classes : first, those whose demand for labor has 
the end of immediate gratification, such as employers of do- 
mestic servants, physicians, lawyers, actors, singers, and so 
on ; and second, those who employ labor for the sake of sell- 
ing something by its means, for an ultimate profit, such as 
manufacturers, merchants, railroad men, and so on. The 
question with individuals of the first class is, Can I afford 
to employ this labor? that is, Have I at hand the return 
services to pay these wages in, and will the gratification 
justify the payment? The question with the other class is, 
Will the direct products of this labor, or something made 
ready to sell and sold by means of it, repay the present 
expenditure with a profit besides? As a general rule, the 
second class of employers puts forth the steadier demand 
for labor, employs skilled rather than common or profes- 
sional laborers, looks sharply after the efficiency of its labor- 
ers, acts with reference to prospective rather than present 
markets, expects back more than is now expended, and only 
proceeds on accumulations of capital soon to be treated of. 

In respect to the first class of employers, — remembering 
what has already been said about professional labor, — the 
following is all that needs to be added so far as demand 
and consequent wages are concerned. There are a great 
many persons in all countries who desire such services as 
common laborers can render, and are able to pay for them 
at a moderate rate only, since their deeVes are not intense 
nor their means very ample. There are everywhere common 
desires for personal comforts and for ordinary gains in con- 
nection with a small capital, just as there are often intense 



LABOR. 227 

desires for personal distinction and for extraordinary gains 
in connection with a large capital. Common laborers, being 
numerous for the reason already given, compete with each 
other to secure the wages thus offered by those who desire 
their services. In many cases, these services could be and 
would be dispensed with, if a high rate of wages was de- 
manded. Under these circumstances, a general market-rate 
of wages for common labor is determined, — an equalization 
of demand and supply is had, — and the rate is always 
moderate, because the service of the labor-givers has few 
elements of scarcity or difficult} 7 about it, and because the 
return service of the labor-takers is not proffered under the 
impulse of unusually strong desires. Of course, a market- 
rate thus established is liable to change from time to time, 
being higher in flush times and lower in dull times, and the 
better individual laborers will get and ought to get the better 
wages. The number of laborers is, of course, an element, 
the general prosperity and hopefulness of empkrvers is another 
element, and the amount and productiveness of capital is 
still another element, but this has more immediately to do 
with wages under the second class of employers. 

Before passing to those, it ought to be said, that there is 
no unit of labor, and consequently no unit of wages. There 
can be no strict measure of physical and mental exertion ; 
and even if there could be, that would not furnish a unit of 
wages, because wages are a resultant of exertion on the one 
side aud of desires on the other ; and there can be no strict 
measure of desires. Hence, in a doctrine of wages, onty 
general principles can be laid down. For instance, :t is 
said, an agricultural laborer in England could earn, six hun- 
dred years ago, but thirty-four grains of standard silver in a 
day, while now he can earn three hundred and fifty grain-. 
Accepting this as true on an average of laborers at the two 
epochs, — what follows? That the laborer now puts forth 
ten times the exertion of his predecessor? No! That the 
demand for the labor is ten times greater now than then? 



228 POLITICAL ECONOMY. 

No ! Even a grain of standard silver, though physically the 
same now as then, is by no means the same iu point of 
value. Silver has become relatively more abundant in the 
course of these centuries, and hence is cheaper as measured 
by commodities in general or by labor in general. ■ Labor 
itself has become more efficient, and is aided by better tools 
and a more advanced science. Besides, a day's labor ia 
no sound measure of comparison as between different times 
or different countries at the same time. How long are the 
respective days? How efficient, how well trained, are the re- 
spective laborers ? How much armed with labor-saving ap- 
pliances? Nothing is more indefinite than the phrase, "a 
day's labor;" and no fallacies are more patent, or more 
common, than those which turn on "days' works" and 
" days' wages " in different countries. Professor Walker in 
his ' ' Wages-Question ' ' gathers from the best authorities 
such statements as these : " The statistics of the iron indus- 
try in France show that on the average 42 men are em- 
ployed to do the same work in smelting pig iron as is 
done by 25 men on the Tees." "On the G-. T. R. of 
Canada the French-Canadian laborers received 3s. Qd. a day, 
while the Englishmen received from 5s. to 6s. a day, but 
it was found that the English did the greatest amount of 
work for the money." " In India, although the cost of daily 
labor ranges from 4^d. to 6d. a day, mile for mile the cost 
of railway work is about the same as in England." " In the 
quarry at Bonnieres, in which Frenchmen, Irishmen, and 
Englishmen were employed side by side, the Frenchman re- 
ceived 3, the Irishman 4, and the Englishman 6, francs a 
day ; and at those different rates the Englishman was found 
to be the most advantageous workman of the three." Even 
in different sections of the same country a marked differ- 
ence of productive power is forced on the attention of the 
observer ; as, for example, between the artisans of north- 
ern and southern France, and the laborers of the northern 
and the southern United States. "The ill-paid and ill-fed 



LABOR. 229 

agricultural laborer of the west of England is clearer at 9s. 
or lO.s. a week than the Nottinghamshire man at lGs." 

But the secoud class of einploj-ers operate in connection 
with capital ; and we must now anticipate the discussions of 
the next chapter, so far as to say, that all capital constitutes 
an immediate and pressing demand for labor. Whoever 
desires a service which a laborer can render, and lays by 
something to pay for that service, creates that instant a de- 
mand for labor; and especially, whoever accumulates raw 
materials which laborers are to work up, builds, buys, or 
keeps machinery which laborers are to tend, or puts himself 
in position to suffer loss by the ownership of lands, ships, 
or other property whatsoever, unless laborers be employed to 
make them productive, creates thereb}' an instant demand 
for labor. All such accumulations whatsoever, destined in 
the owner's mind to be employed in further production, all 
implements, buddings, and improvements, designed to assist 
labor, and raw materials which labor must work up, are 
capital ; and capital must be constantly united with labor, 
or the owners will suffer an inevitable loss. The presence 
of capital anywhere constitutes a demand for labor. The 
more capital there is anywhere, the stronger the demand for 
labor ; and capital, therefore, is the poor man's best friend. 
Capital does not like to lose its profit any more than the 
laborer likes to lose his bread. In a true and general view, 
the one is under just as much pressure to employ laborers, 
as the other to get employment. They come together of 
necessity into a relation of mutual dependence, which God 
has ordained, and which, though man may temporarily dia 
turb it, he can never overthrow. 

Now let us notice first that the aggregate of all his forms 
of capital helps to make up in the mind of the capitalist his 
motive for employing labor, because the more he has invested 
in buildings, machinery, and materials, the more urgent is the 
necessity to employ laborers, in order to make the investment 
productive ; although only a small part of the whole capita} 



230 POLITICAL ECONOMY. 

can be free to be offered in the payment of wages. Demand 
fo? labor, speaking strictly, is constituted only by that part 
of the capital (whether now in existence, or soon to be 
w 3ateol) which is available to be offered in the form of 
w iges ; but it is clear, that, as a rule, demand, thai; is, the 
portion of capital designed in the mind of the capitalist for 
the payment of wages, may increase under the influence of 
his increased desire for laborers ; and an increased desire for 
laborers is a necessary consequence of the increase in the 
aggregate of his capital. Whether the portion designed for 
wages will increase or not, on an increase of capital, will 
depend mainly on the action of the laborers. It is certainly 
possible that aggregate capital may go on increasing, while 
the portion set aside in the mind of the employer for wages 
may remain stationary, or even be diminished, owing to the 
competition of an increased number of laborers and the 
smaller pay going to each. If the laborers remain about 
the same in number and efficiency, and if they intelligently 
take hold of their position, the size of this mental wages- 
portion, and consequently the amount of actual wages, will 
surely increase with all increase of aggregate capital. There 
is no known proportion between aggregate capital and the 
wages-portion as now defined, and from the variable nature 
of the second element, there never can be, although this 
subtle connection between the two things is certain and 
important, — important because actual wages paid are always 
tending towards their limit in the wages-portion. This point 
of the influence of the whole capital on the desire for labor 
era, and consequently (though indirectly) on actual wages 
paid, was new when presented in the earlier editions of this 
book, and seems one of much importance in unfolding the 
relations of capital to labor. 

On the other hand, the proportion between actual zoages 
paid and the value of the finished products is ascertainable. 
The United States Census of 1870 declared this proportion 
in the entire manufacturing industries of the country to be 



LABOR. 231 

19 : 100, that is to say, wages were 19 % of the value of 
Lhe goods. In the cotton and woollen industries, taken 
alone, wages were about 1G % of the value of the goods as 
sold. The census of 1880 puts the wages paid in the an- 
thracite coal industry of that year as 53 c / of the value 
of the coal. This includes wages of superintendence ; and 
there is probably no industry in which wages bear so large a 
ratio to value of product as mining, since materials and 
machinery play so small part in that industry. These were 
1G c / of the value of the coal in that year, and 31 % of 
that value was gross profits. It is probably safe to sa}', 
that, taking all branches of industry in this country together, 
one-fifth of the value of all commodities sold, that is, 20 %, 
has been paid out as wages to the laborers concerned in 
their production. The products of manufacturing industry 
alone were worth in 1870, $4,232,325,442, of which 19 %, or 
$804,141,833, represented wages. What we have loosely 
called skilled laborers, accordingly, have a hold on their em- 
ployers somewhat more firm than common and professional 
laborers have on their employers. Capital is conservative. 
Capital is anxious to increase itself. Capital knows its de- 
pendence upon its laborers. But it is a great mistake for 
laborers to suppose that there is no limit to wages, thai; they 
can crowd their employers indefinitely. The motive of these 
employers is profits; and when profits disappear, this demand 
for labor disappears also, except under certain transitory con- 
ditions, when, rather than lose their customers and get out of 
the channels of trade, employers will go on for a little at a 
loss to themselves. But this loss is ultimately a greater losa 
to the laborers for reasons to be unfolded in the next chapter. 
And it is a still greater mistake for laborers to suppose that 
their own industrial qualities are a matter of indifference so 
far as wages are concerned. Wages are paid out of the 
joint products of the employers' capital and the laborers' 
industry ; and when that industry is the best in quality and 
the steadiest in quantity, the product will be the greatest, 



232 POLITICAL ECONOMY. 

and the part going to wages larger than ever. It is a pity 
that there is so much misunderstanding and ill-feeling be- 
tween employers and skilled laborers whose interests are at 
bottom one, and whose relations ought to be so cordial. 
Most of the so-called labor-troubles have been between these 
two classes, owing in part to ignorance of economical truth 
on the part of both, owing sometimes to pride and petu- 
lance on the part of employers, and oftener owing to unrea- 
soning jealousy and aggregated action on the part cf labor^ 
en. So it has always been. Labor-troubles are almost as 
old as civilization. The poet Euripides, in his play of the 
'•' Supplicants," both indicates facts as they were then, and 
points out a hope in which we may share, that these middle 
classes by a better harmony with each other may yet " save 
the State:" — 

" In each State 
Are marked three classes: of the public good 
The rich are listless, all their thoughts to more 
Aspiring; they that struggle with their wants, 
Short of the means of life, are clamorous, rude, 
To envy much addicted, 'gainst the rich 
Aiming their bitter shafts, and led away 
By the false glosses of their wily leaders. 
'Twixt these extremes there are who save the State, 
Guardians of order, and their country's laws." 

Now, this aggregate Demand for labor in any country needs 
a name. It is something offered or promised to laborers. 
It is either in hand or expected to be in hand. The motive 
for offering it is, on the part of the non-capitalists, or em- 
ployers of the first class, present gratification of some sort ; 
on the part of the capitalists, or employers of the second 
class, ultimate profit; that which both these classes to- 
gether are willing to pay rather than forego the varied ser- 
vices of laborers, or what we have called as related to the 
laborers maximum of wages, requires now a name as related 
to the employers ; for, although its seat is only in the minds 
of men, it is certainly a substantive thing, and tends am 



LABOR. 233 

Btantly to coincide with an objective and practical thing, 
namely, actual wages paid out. Until a better name offers, 
let us call this mental limit and amount the Wages-Portion. 
The aggregate of wages actually disbursed in any country 
may fall below this ideal sum, but can never overpass it. If 
the laborers are efficient and intelligent, and use their privi- 
leges as individual parties to a bargain, the whole amount 
of values distributed as wages will closely approximate the 
Wages-portion. The larger the wages-portion, the larger the 
sum of actual wages will be. This sum will be distributed 
among all laborers at greatly varying rates, according to 
the nature of the services rendered, and according to the 
intensity of the reciprocal desires of the two parties to 
the sale. Demand and Suppby, in their action aud re-action 
on each other, furnish the universal law of Wages, as of 
every thing else bought and sold. If we look first at the 
Employers, it is in the interest of good wages, that, (a) they 
be many, (b) they have much capital, (c) this capital be very 
productive, (d) more capital be constantly added, and (e) 
thus and every way the wages-portion become greater ; and if 
we look second to the Laborers, it is in the interest of wages, 
that, (a) their industrial capacity be high, (b) their intelli- 
gence and mobility crowd actual wages to the wages-portion, 
and (c) their number at any one point able to render just the 
same service be few. These are the true principles of Wages. 
A working man once put it well and short, who said: "/ 
know when two bosses are running after one man, wages are 
high ; when there are two men running after the one boss, 
wages are low " 

AVe may see now what we are to think of some remedies 
| opularly recommended for low wages. A brief discussion 
of what is false will give us a stronger hold of what is true. 

1. Some people say, "Government ought to interfere to 
better wages, at least to designate a minimum below which 
they shall not go." This proposed remedy is a delusion, 
and so is every other one that ignores the general law of 



234 POLITICAL ECONOMY. 

wages just established. Government is nothing in the world 
but a committee of the citizens of a country chosen to attend 
to certain great interests of the whole body which cannot 
otherwise be cared for ; and this committee (whatever be 
the form of government) has no money except what is gath- 
ered for its prescribed uses by taxation of the people, and 
is rarely or never wiser and better than the average sense 
and virtue of the people. To show the people, accordingly, 
how to make their bargains, how to buy and sell and save 
and spend, is a function government is not fitted for, and 
was not chosen to perform, and never undertook without 
making a botch of. Besides, such proposed action of gov- 
ernment could have no tendency whatever either to enlarge 
the wages-portion, or to increase the industrial efficiency of 
the laborers, or to diminish the number of competitors at 
any one point of the wages scale. As a matter of fact, 
such governmental action would have precisely the opposite 
effect at each of these three vital points of wages : employers 
would have less motive to swell the wages-portion, laborers 
less motive to improve their capacity, and more motive to 
congregate locally. Suppose, that at some given point in 
the scale of wages, free and intelligent competition has been 
had on both sides, and that the average rate of wages as 
thus determined proves one dollar per day for each laborer. 
Suppose further, that everybody outside of the employers 
thinks this is quite too little, and that government accord- 
ingly issues a decree that wages at that point must be there- 
after one dollar and a half per day. That decree has no 
tendency at all to enlarge the wages-portion of those partic- 
ular employers, because that is determined by the general 
productiveness of labor, and by the division under free 
competition between wages and profits ; if, therefore, the 
decree were carried out, as it never practically could be, the 
result would be that only two-thirds of the laborers pre- 
viously employed could be employed there at all, and the 
remaining third would certainly be worse off than before ; 



LABOR. 235 

ami besides, the division of labor being necessaiily lessened, 

production would be less profitable to the employers, and 
the next wages-portion would be less than before, and thus 
the outcome of the remedy would be worse than the disease. 
Let alone the artificial interference of government, and all 
natural accessions to capital at that point, all investment 
of profits in an enlarged business, all saving from expendi- 
tute for the sake of further production, tend of themselves 
to increase the wages-portion, and thus, the number and intel- 
ligence of the laborers continuing as before, tend to raise 
the rate of wages. Or, if there be no accessions to capital, 
or other influence swelling the wages- portion, and the num- 
ber of laborers be diminished at that point, as by migra- 
tion to new fields of effort or enlistment in armies, the 
competition of wages-payers for labor will be increased, and 
the rate of wages will rise. Reversed conditions, of course, 
will give reversed results. 

But there are, nevertheless, indirect ways in which a gov- 
ernment may act most beneficially on this whole matter of 
wages. By using its power of taxation to the sole end 
of drawing from the people only so much money as is need- 
ful for its rightful uses in the way easiest for them to pay ; 
by fidelity to its peculiar trust of making the rights of per- 
son and property as secure as possible to all on the basis 
of strict equality, without yielding special privileges to any ; 
and by fostering the means of education and the diffusion 
of knowledge among all classes of the people alike ; a gov- 
ernment may act helpfully and powerfully upon employers 
of both classes, giving impulses to enterprise, spurs to indus- 
try, assurance to gains, and effectiveness to the desire ot 
accumulation, and thus contribute to maximize the wages- 
portion ; while at the same time the same agencies act upon 
laborers of all kinds with equal benefit, making them intelli- 
gent, hopeful, saving, confident, trustful in themselves and 
in the government, and imparting to them that character 
and self-respect which fits them, in exchanging services with 



236 POLITICAL ECONOMY. 

capital, to demand and secure their full rights in the ex- 
change. It is not denied that capital takes advantage of 
the ignorance and immobility of laborers, and sometimes 
secures their services at a less rate than the just relations 
of capital to labor then and there would indicate, but the 
remedy for this is not in arbitrary interference of govern- 
ment in the bargain, but in the intelligence and self-respect 
of the laborers which shall fit them to insist on a just bar- 
gain. In this whole sphere of exchange, the just and com- 
prehensive rule always will be, that when men exchange 
services with each other, each party is bound to look out for 
his own interest, to know the market-value of his own ser- 
vice, and to make the best terms for himself which he can 
make. Capital does this for itself, and laborers ought to do 
this for themselves, and if they are persistently cheated in 
the exchange, they have nobody to blame but themselves. 
Government should give them all facilities for intelligence : 
they should give themselves a character, and cherish a hearty 
self-respect, which there is nothing in their position to 
diminish : towards such laborers, capital occupies no van- 
tage ground in an exchange of mutual services-. But let us 
add here once for all the grand truth, that Political Economy 
does not cover the entire relations between employers and 
employed, and between buyers and sellers generally ; it 
covers perfectly their economical relations — the relations 
between buyers and sellers as such ; but morality and religion 
have additional but not incompatible words to utter when 
this science becomes silent ; mutual forbearance and conces- 
sion, mutual affection and helpfulness, are duties enforced 
by higher considerations than those of gain. 

2. Others say, " Public opinion ought to be brought to 
bear upon employers to induce them to give sufficient 
wages." It is clear, that public opinion can do nothing to 
this end directly, partly because it has no effective organ by 
which to voice itself, but mainly because it cannot reach the 
root of the matter, in that it cannot make general industry 



LABOR. 2 > »T 

more profitable and thus swell the wages-portion, nor can it 

make laborers less numerous or more efficient at any one point 
of the scale. People oftentimes forget what is the motive 
of capitalists in employing labor, namely profits, and that 
if these decline or disappear, wages cannot rise; and they 
forget too, that capitalists are under no obligation to employ 
laborers at any time : no one is ever under any obligation 
to buy or sell : it is a question of gain and not of duty. 
Public opinion, however, may do something towards better- 
ing the wages of labor, in countries where they are low, by 
organizing means to assist the laborers in distributing them- 
selves at points where their services are most in demand. 
Societies in our seaboard cities, whose object it is to aid 
immigrants to pass on from those cities where labor is very 
abundant, to the country towns and to the West, where it is 
relatively much less so, are commendable in their purpose 
and spirit. So also are emigration societies and agencies, 
in countries like Ireland, where more or less of misgovern- 
ment and much more of misunderstanding and a great deal 
of race antipathy and vital religious differences and a very 
general ignorance produced temporary pressure of popula- 
tion on the means of support. Even after Irish population 
had much declined by voluntary emigration, and the condi- 
tion of the laboring classes for other reasous also had much 
improved, the Irish Land Act of 1881, in addition to its 
more essential clauses relating to tenure and rent and sale, 
made provision for parliamentary assistance to further emi- 
gration, thus hardening public opinion into positive legis- 
lation. "Wherever there is a pressure of numbers on the 
wages-portion so as to bring actual wages essentially below 
that, as is the case also in China, it is a good thing for pub- 
lic opinion, and possibly also for legislation, to be favorable 
to emigration to newer and more fortunate countries, and 
thus to assist in the distribution of labor to those points, 
wherever they may be, wlier 1 capital is ready and anxious to 
employ it. 



238 POLITICAL ECONOMY. 

It ma)' surprise some who are familiar with books on Po- 
litical Economy, that we do not here adduce the influoice 
of public opinion in restraining population as favorable to 
wages, and put over against each other the force of that 
spring of population which the Creator has coiled up in the 
nature of man and the weakness of that power by which 
the earth brings forth sustenance for man. Malthusianism, 
as it has been called, is really a topic of Physiology and not 
of Political Economy at all. Political Economy presupposes 
the existence of persons able and willing to make exchanges, 
before it begins its inquiries and generalizations. How they 
come into existence, the rate of their natural increase, and 
the ratio of this increase to the increase of food, however 
interesting as physiological questions, have clearly nothing 
to do with our science. But the discussion was so respecta- 
ble in its origin, and has played such a part in the growth 
of our science, that we must give just a sketch of it. Mr. 
Malthus, an English clergyman and teacher, greatly inter- 
ested himself during the first third of the present century 
in the welfare of the poor ; he observed, that, as a rule, they 
had large families, and even in the workhouse families grew 
larger, so that the general hopelessness of their condition 
seemed no check" to their increase in number ; wages were 
very low on account of the pressure of such numbers on the 
wages-portion ; food was liable to be very high on account 
of the wretched corn-laws forbidding importations of grain ; 
he was led to contrast the natural increase of population in 
something like geometrical progression, with the rate of the 
increase of food even under improved agriculture in only 
something like arithmetical progression ; the United States 
was then doubling its population in 25 years, and he calcu- 
lated that, at this rate, the inhabitants of any country in 
five centuries would increase to above a million times their 
present number, which would give England in that time more 
than twenty million millions of people, or more than could 
even get standing-room there ; for this tendency of the law of 



LABOR. 239 

human fecundity to outstrip the results of the law of returns 
trjta land, he saw no remedy except in checks to population, 
which lie divided into the positive and the preventive, the 
first of which, such as war, famine, and disease, increase, 
the number of deaths, and the second of which, such aa 
prudence in contracting marriage, and temperance after 
marriage, diminish the number of births; of course it is 
better that the checks limiting fecundity should come into 
play, rather than those decreasing longevity, and Malthus 
and his followers were at great pains to inculcate upon the 
laboring classes as an indispensable condition of their rise 
in comforts the duty of later marriages and fewer children. 
Their discussions have attracted great attention, and have 
been supposed to be very pertinent to the subject of wages ; 
but since the abolition of the corn-laws, and the demonstrated 
ability of Great Britain under free trade to draw on the fer- 
tility of the whole world for the maintenance of her people, 
their irrelevancy to economics has come to be seen. Experi- 
ence has shown, that the strong impulse in mankind towards 
procreation is not too strong for the purpose intended ; that, 
as men under moral and religious training come more and 
more under the influence of reason and affection, the preven- 
tive checks to population come silently and effectually into 
operation ; and that, taking the world at large, food and 
comforts have more than kept pace with the stride of popu- 
lation, since its inhabitants as a whole were plainly never 
so well fed and clothed and housed as now. The abstract 
antagonism of the law of the increase of population with the 
law of the increase of food may be admitted, if one chooses 
to insist on it; but theu Hi: who is the author of the laws, 
is author also of natural counter-workings of them, so that 
a practical tendency towards their coming into conflict -S 
confidently denied. Each human being is as much consti- 
tuted by Nature to receive services as to render them, in 
economics each without exception receives when and because 
he renders, s>ud each alike is naturally able also to become a 



240 POLITICAL ECONOMY. 

capitalist ; economical laws present no obstacles, that we can 
see, to all men becoming rich, as we use that term ; most 
men are unwilling, some are perhaps unable, to fulfil the 
moral conditions of getting rich ; while, we may depend upon 
it, the famines of the world have been caused more by the 
indolence and want of foresight of individuals, and by 
the maladministrations of governments, than by the law 
of population. 

3. Many say, " There may properly be combinations 
among the workmen themselves for the purpose of dictating 
the rate of wages to the employers." But will "strikes" 
accomplish that for the raising of wages which neither gov- 
ernment nor public opinion can effect? A strike is a combi- 
nation among laborers for an increase of wages, by which 
they agree to stop work altogether until their employers shall 
comply with their terms. It is not to be denied that work- 
men thus possess, under many circumstances, a very consid- 
erable reserved power which they can bring to bear upon 
their employers. "When the processes of production are 
going briskly forward, when the manufactory is thoroughly 
furnished with competent hands, and profitable orders are 
in waiting, it is no laughable thing for the owner to be told, 
of a cloudy morning, that his hands have all stopped work, 
and refuse to lift a finger, until he shall agree to pay them 
wages at a rate which they themselves dictate. Of course, 
his first impulse is to discharge every man of them, and 
endeavor to fill his factory with new hands. But this he 
cannot always do. At best it will take time. Meanwhile 
his wheel or engine must be idle, customers be lost, orders 
unfilled, and profits nowhere. And so, many an employer 
has surrendered to a strike, when he felt that it was all 
unjust, rather than undergo a still greater loss. It is ad- 
mitted that workmen may sometimes strike and gain their 
point, but it is none the less true for all that, that strikes 
are false in theory and pernicious in practice ; that they 
spring from utter misapprehension of the true principles of 



LABOR. 2-11 

wages ; that they imi utter relations between employers and 
employed which ought to he cordial and free ; and that they 
rarely or never are permanently advantageous to the work- 
men themselves. 

In the first place, then, strikes are contrary to the very 
old adage, that it takes two to make a bargain. If we express 
this* proverb in the language of our science, it will take some 
such form as this : "When two men have mutual services to 
exchange, let them come to a fair agreement as to the terms 
on which they will exchange. Certainly, let each make the 
best terms he can, hut let the hargain always he free. If 
one party, who happens to have the power to do it, uses any 
thing like compulsion upon the other, it ceases so far forth 
to be a bargain at all, and becomes a sort of robber)', of 
which in some cases courts will take cognizance. Now, 
workmen bring a certain valuable service to the market, just 
such a service as the capitalist wants, and he has to offer 
just such a sendee as they want, namely, wages : let the two 
parties come to a free and fair agreement on the terms of 
their exchange : let each workman by all meaus make the 
very best terms he can, insisting to the last penny on all he 
can get elsewhere, for the value of his service is determined, 
as other values are determined, by what it will bring : let the 
employer do just the same on his side, and so let a fair bar- 
gain for the time present be struck. This is a veiy 7 good 
kind of striking ; and the more intelligence and skill and self- 
respect a workman has, the better prepared he is to strike the 
bargain and secure his just due ; and if the employer will not 
yield him this, let him have done with it at once and go else- 
where. Or, if a just bargain has once been struck, and cir- 
cumstances so alter that the workman thinks he can rightfully 
demand more wages, let him frankly and fully demand tlu n, 
remembering always that it is an exchange he has to do w.lh, 
and that it takes two to make a bargain. If he cannot get 
for his service what he thinks he ought to get, what lie thinks 
the service is worth in another market, let him exercise his 



242 POLITICAL ECONOMY. 

perfect right to quit and go elsewhere. All this is fair and 
above-board and legitimate. 

But a strike is wholly different from this, in that it briuga 
a kind of compulsion into play. A bargain should be biu.ken, 
if at all, just as it was made, with the two parties face to face, 
and everybody else aloof; and a new bargain should be made, 
just as the old one was, with the two parties face to face, 'and 
everybody else aloof. But a combination among workmen to 
leave an employer in the lurch, and especially a combination 
which forces into its ranks by cajoling or menaces those 
who are unwilling to join it, as is so commonly the case 
in strikes, is not only contrary to the inmost nature of a 
bargain, but also of itself a sort of confession of the injus- 
tice of the claim. If the claim be just, there is no occasion 
to extort it. If the value of the service rendered be equal to 
the sum demanded, and especially if this can be obtained 
elsewhere, there is no need of conference and combination 
and conspiracy. Let each man tell his employer the facts, 
and if this prove ineffective, let him go quickly where he 
•;an get the most for his service. That this is not done, that 
neans are brought to bear upon the employer which are not 
vrdinarily used in bargains, — means of the nature of a 
hreat — that the justice of the claim is not relied on in 
t . case where, more than anywhere else, justice can enforce 
i self, that full and free explanations are not had, that no 
L->tice is given, that great damage is expected by their 
action to accrue to the employer, all this seems to fcrget 
tL.it the transaction between employers and employed is a 
case of pure exchange, a simple bargain of one service 
agiinst another service. 

A bad principle always works badly in practice ; and the 
principle that underlies strikes is so opposed to the funda- 
mei tal nature of -exchange, that we might expect beforehand 
thai it would work badly. As a matter of fact, it works 
bachy enough both upon employers and employed, because 
striL -*s only take place in relation to employers who operate 



LABOR. 240 

v\ith accumulations of capital more or less, and on nlnse 
minds consequently strikes will work to lessen the wages- 
portion. The production of most material commodities is 
a joint process, in which capital and labor both conspire, 
and the gross returns of which belong wholly to the capital- 
ists and laborers. If these returns be large, the two parts 
into which they are divided, namely, the wages of labor and 
the profits of capital, will also be large ; and therefore, it is 
for the interest of both laborers and capitalists alike to ma Ice 
these returns as large as possible. Wages being taken out 
of these returns, the rest is gross profits, or, gross profits 
being taken out, the rest is wages ; and it makes no prac- 
tical difference in this division, whether or not some or all 
of the wages have been advanced to the laborers while the 
production was still going forward, since the wages in all 
cases come sooner or later out of the proceeds of the joint 
process. The capitalist has no motive to pay ultimate wages 
out of his previous accumulations, and ought not to be ex- 
pected to do so, and were he compelled to do so, it would 
soon be all the worse for his laborers, since these accumu- 
lations are the gross capital feeding the wages-portion. It 
is not only rightful for the capitalist, but needful also for 
the laborers, that wages, whether advanced or not to the 
laborer by the capitalist out of his own or borrowed capital, 
ihall really be paid out of the proceeds of that on which the 
labor is now expended ; whatever, therefore, tends to lessen 
these proceeds, necessarily lessens actual wages. Any inter- 
ruption of the process of production by strikes, all consequent 
imbittcjed relations between employers and employed, and 
any want of hearty working together of the labor with the 
capital, will diminish the gross returns of the two parties 
to the joint process, and thus injure at once both wages and 
profits. 

Let us suppose a strong case just to show the principle 
involved, namely, that it takes three months to realize the 
returns in some branch of production, and that, when the 



244 POLITICAL ECONOMY. 

workmen are paid off at the end of one cycle , they strike at 
the beginning of the next, and both parties hold out for 
three months. What is now the chance of higher wages 
for the workmen? It shall go hard even if they get aa 
much as before ! And why ? Because the factory has stood 
idle, the owner has lost three months' profits on the whole 
investment connected with it, he has lost customers by the 
strike, and the whole course of his business is disarranged ; 
the workmen have lost wages for three months, have been 
supported meantime out of their little funds laid by or from 
the contributions of others, and they are not in as good a 
position either morally or pecuniarily to drive a favorable 
bargain with their employer as before ; besides, by thus 
inflicting a loss upon themselves, they have found an oppor- 
tunity of inflicting a loss upon their employer, in conse- 
quence of which the wages-portion is demonstrably less than 
it would otherwise have been, and actual wages in all proba- 
bility will be less for the next cycle. So far as this point 
is concerned, there is no sense or reason in the common 
jealousy of workmen towards employers, and in the too 
common absence of conciliation towards the employed on the 
part of employers. Their duties and then* relations are 
reciprocal ; and neither party can expect all the forbearance 
to be exercised upon the other side. There is no real oppo- 
sition of interests between them, for they are partners in the 
same concern. Laborers who are intelligent, prudent, skil- 
ful, courteous, will infallibly get their due ; and employers 
who are humane, urbane, fair, will find then* account in it. 

This course of argument is strongly confirmed by authen- 
tic facts and statistics. Mr. "Wright, Chief of the Bureau of 
Labor in Massachusetts, in his Report for 1880, gave a 
succinct account of all strikes in that State from their begin- 
ning in 1830. They were 159 in all, of which 109 were 
unsuccessful, 18 apparently successful, 16 compromised, G 
partly successful, and 10 "result unknown." In Great 
Britain during the year 1878, there occurred 277 strikes, of 



LABOR. 245 

which only 4 were successful, 17 were compromised, and 
256 were failures. The direct losses of laborers in the vari- 
ous strikes in Massachusetts for the fifty }'ears, to say noth- 
ing of the losses of the capitalists, were enormously large ; 
of which a good instance is given in the single town of Fall 
River, where, in several strikes, mostly in 1875 and 1870, 
the sum of §1,400,000 was voluntarily forfeited b} T the 
idleuess of the operatives. Fields of labor are often lost by 
strikes, as well as direct wages, of which a notable instance 
was the introduction of Chinese labor into North Adams in 
1871 to the permanent displacement of the native shoe- 
makers. Even if, after an interval of idleness, a rise of 
wages be secured, the striker rarely stops to calculate how 
long he will have to work at the higher rate just to make 
up what he has lost. If the strike be for 5 % increase 
of pay, and one month's wages at the old rate be lost by 
it, it will take 1.6 years to make it up at the new rate; 
if two months be lost in idleness, 3.2 years must be spent 
in making up the loss ; and if three months be lost, it will 
be 4.8 years before he will have the least groin from his 
increased pay. Is not that paying too dear for the whistle ? 
Mr. Wright's conclusions are so apt, that we will quote 
them: (1) " Strikes generally prove poicerl^ss to benefit the 
condition of the wages-classes;" (2) "Strikes tend to de- 
price the strikers of work;" and (3) "Strikes lead to im- 
providence, and are demoralizing in their effect upon the 
workinginen." 

4. Lastly, many say: "Co-operation is a scheme likely 
to raise the wages, and permanently improve the condition, 
of some classes of laborers." Tins is a matter that was 
much agitated in Europe, and somewhat also in the United 
Slates, during the third quarter of the 10th century; but 
Ihe interest felt in it is now much less than formerly, owing 
to the failures that have mostly attended the attempts to 
put the scheme into practice. The idea is, that certain 
laborers within a given class combine of their own accord, 



246 POLITICAL ECONOMY. 

either to purchase their necessaries in commtn and at whole' 
sale, hence at cheaper rates because avoiding all profits oj 
the middlemen; or, m,ore especially, to engage in the joint 
production of the commodities they are familiar with, the 
laborers furnishing the capital from their little hoards or 
borrowing it on the strength of their individual or associated 
credit, managing the business themselves, all being co-part- 
ners, and of course all sharing pro rata the profits of the con- 
cern. All this is well ; and ia countries where laborers have 
been under traditional disabilities, it may be in some cases 
very promotive of their self-respect, activity, frugality, and 
general welfare ; but any one can see that no new economic 
principle is involved in the plan. As in all other produc- 
tion, so here, there must be (1) capital from some source, 
(2) steady and skilful labor, and (3) superintendence or 
management of the business. It is at the third point that 
schemes of co-operation have mostly broken down. The 
faculty of good management is rare ; the organizing and 
executive ability needful to carry through any scheme of co- 
operation will not come upon call ; if any of the co-operators 
chance to possess it, the scheme may succeed, although he 
who is conscious of having it will prefer to use it for his own 
gain in his own way, to say nothing of the practical impos- 
sibility of any man's working with the same spirit when 
the gain or loss is. to be largely another's as when it is to 
be wholly his own; moreover, it -has been well said, "it is 
impossible to hire commercial genius or the instincts of a 
skilful trader; " so that, while there is no trouble about the 
workmen uniting the character of capitalist and laborer in 
their own persons, and no doubt that they will work harder 
and more skilfully while sharing profits as well as receiving 
wages, it is still true, that the difficulty of securing a real 
" captain of industry," and thus a perfect organization and 
management of the whole business, puts the scheme of co- 
operation out of the question as a means of raising wages, 
or promoting the general welfare of laborers. 



lab on. 247 

In this country, where there is nothing to hinder any 
laborer from becoming a capitalist, where the savings-banks 
are open to the smallest gains, where nothing is more com- 
mon than for two or more workmen to organize a firm to 
cany on some branch of business, where most of the capi- 
talists proper were formerly laborers proper, and where the 
shares of most of the joint-stock companies are open to 
everybody who has the means to buy them, there is only one 
consideration that seems to justify any special jealousy 
of laborers as such towards capitalists as such ; and that is 
the fact, that Legislation every now and then, sometimes 
on a small scale and then on a gigantic one, now by means of 
corporate charters and then by other ways more indirect and 
effective, docs confer .certain extraordinary privileges upon 
capital. So long as capital and labor rest solely on their 
natural rights, neither can have the advantage of the other ; 
and so far as each recognizes their identity of economic 
interest and the consequent reciprocity of obligation and 
effort, the prosperity of each will build up the other; but, 
on the other hand, so far forth as advantage is given to 
capital by law, it is necessarily unjust to labor, and ulti- 
mately injurious to capital also ; and, in this case, laborers, 
seeing just what it is that hurts them, must combine and 
strike, not capital (their friend) , but a piece of perverted 
legislation (their enemy). The Legislature, whether State 
or National, cannot be too scrupulous in this whole matter, 
because the proper limits of legislative action on econom- 
ical subjects are pretty narrow, and a fierce friction begins 
as these limits are widened ; in general, capital and labor 
should each have the utmost liberty of action compatible 
with social security, and the equal rights of each will best 
bo reached by leaving both to take care of themselves sub- 
ject only to general laws relating to person and property. 
But if the Legislature yields to special claims of capital, it 
must expect to hear labor also knocking at its doors : if, for 
example, capitalists "strike" for artificial profits by means 



248 POLITICAL ECONOMY. 

of a protective tariff, why may not laborers "strike" for 
artificial wages ? The former have set the latter a bad ex- 
ample ; and much more than is commonly supposed of the 
recent discontent of labor in the United States is due to this 
greed of a few capitalists demanding and securing for them- 
selves special privileges under the law. Let alone. Legis- 
latures, whether State or National, are not wise enough, 
and never will be, to settle any of the great questions in- 
volved between capitalists and laborers ; to settle, for exam- 
ple, how high wages any class of capitalists shall pay, or 
how many hours per day adult laborers shall work ; and 
even to try to settle any such things as these by legislation 
is an economic abomination. 

In our discussion thus far of labor and wages, we have 
been under the disadvantage of not knowing exactly what 
Capital is and the part that it plays in Production. The 
next chapter will throw out light upon these points, and 
later discussions of wages-questions will confirm these pre- 
liminary ones. We have also teen under the disadvantage 
in common with all economists of being compelled to treat 
of laborers as if they formed a quite distinct class by them- 
selves, and of capitalists as if they also were a class by 
themselves quite distinct from the laborers ; while, as a mat- 
ter of fact, and especially in this country, laborers are very 
often at the same time capitalists, as the returns of all our 
savings-banks show, and nearly all capitalists are at the 
same time laborers, at least to the degree of superintend- 
ing actively their own capital. It alters no principles, that 
laborers shade thus into capitalists, and that most persons 
of either class belong also at the same moment to the other 
class ; since labor and capital play their distinct parts in 
Production without reference to the question, whether the 
same person furnish one factor or both. It may be added, 
that Production is most likely to be successful in those 
branches in which it is most difficult to draw the line be- 
tween the laborers and the capitalists, because there any 



LABOR. 249 

conflict between labor and capital is extremely unlikely to 
take place. 

It has been proven many times over by experience, and 
emphatically by the recent experience of the United States, 
that the legalized use of an inferior money operates to the 
greater disadvantage of laborers as such, than of capitalists 
as such. It harms both ; and it would seem at first sight a'? 
if those capitalists who are in the receipt of fixed incomes, 
as annuities, would suffer more from bad money than any- 
body else, and perhaps they do ; but laborers as a whole class 
find their wages late to rise in the universal rise of prices con- 
sequent upon a depreciated money, because as a class they 
are slower to perceive the change in the purchasing-power of 
the medium than capitalists are, and are consequently slower 
to insist on then" just rights in the now altered circumstances ; 
while the fall of wages, late to rise under a poor money, is 
apt to be prompt enough under a return to better money, 
because employers see the change at once, and act quickly 
in accordance with their own interests. In general, it may 
be said, that all departures from sound legislation, particu- 
larly in regard to money and taxation, are sure to make 
against the laboring classes, and the only certain remedy for 
such legislation is in their own intelligence and vigilance. 

Laborers work for the sake of wages, but it is an honor 
to human nature that there are very few men who would be 
willing to work at any wages in doing things that they know 
to be useless. For example, to carry stones from one heap 
to another, and then carry them back again, for no ulterior 
purpose, is a task that few would be content to perform 
even for very high wages. Man is not a machine. His 
mind must be somewhat interested in the work of his hands ; 
and this is another point at which our field of Economics 
touches the field beyond of Aims and Ends. 

We may summarize thus : — 

1. Labor is physical or mental effort which demands for 
itself something in return. 



250 POLITICAL ECONOMY. 

2. That return is called wages. 

3. Wages depend on the great law of Supply and Demand. 

4. Other influences on wages are out secondary at best. 

5. Labor may be loosely divided into common, skilled, and 
professional. 

6. Employers may be loosely divided into those who pay 
ivages for a present gratification, and those who pay wages 
for an ultimate profit. 

7. Capital thus has intimate relations with wages, and the 
two are not antagonistic. 

8. Bad money is worse for wages than for profits, but is 
bad enough for both. 

9. Governments have small functions in wages-questions, 
as in economics generally. 



CAPITAL. 251 



CHAPTER VI. 

CAPITAL. 

The second grand requisite of Production is Capital ; and 
we are now to learn what this is, how it arises, how it works, 
and what its vast influence is on the ever-enlarging world of 
exchanges. 

1. Labor, as we saw in the last chapter, is an original ele- 
ment in Production, because, in getting something ready to 
sell and selling it, effort, physical or mental or both, begins, 
accompanies, and concludes the process. The various forces 
of Nature, which will be treated of at length in the next 
chapter, are also an original element in Production, and we 
have already learned that these powers work freely and tire- 
lessly in the service of man. But labor can only go a very 
little way, and natural agents can only go a very little way, 
without the constant aid of the other requisite, Capital. 
Here is another of the trinities of Political Economy. Labor 
leans on its counterpart, — capital ; and power-agents of all 
kinds ply their work in production and plough their way past 
obstacles through their instrument, — capital. But capital 
is not an original element, because it is itself a product of 
the other two elements. Every form of capital is indeed 
such a product, but is at the same time so essential a factor 
in further production, that labor and power-agents amount to 
but little without its constant and accumulated co-operation. 
Power-agents are free; labor demands a return ; and capital, 
which is a sort of embodied labor, demands also a reward 
for its use ; the owner of the capital is frequently a distinct 
person from the present laborer ; but Political Economy is 



252 POLITICAL ECONOMY. 

able to show that there is no natural opposition of interest 
between capital and labor, that capital is as dependent on 
present labor as labor is dependent on capital, that each is 
equally interested in the prosperity of the other, and that 
thus a deep and admirable harmony subsists in this part, as 
in every other part, of the social organism. 

The word Capital is derived from the Latin caput, a head, 
a source, and gives intimation in its etymology of its sci- 
entific meaning. The word caput is often used in classical 
Latin for a sum of money put out to interest, and its deriva- 
tive capitale is also used in the same sense, at least in medie- 
val Latin ; and from this form of the word have come into 
English not only Capital, but also, by corruption, Cattle and 
Chattels. Flocks and herds were at one time the principal 
riches of our Saxon ancestors, and also the principal means 
of increasing their riches, and in process of time the same 
root-word came to be spelled differently as applied to animals 
(Cattle), or to inanimate things of value (Chattels). The 
notion implied in the Latin caput and in the English source 
came along in all these words, and hence Capital may be 
scientifically defined in accordance with its root-meaning as 
Any valuable thing outside of man himself which becomes a 
Means in further production. 

We are willing to take the risks with this definition. Our 
previous definitions of Capital, while in substance equivalent 
to the one now given, did not so distinctly exclude personal 
services from the category of Capital. The boundary line 
between Labor and Capital cannot be clearly drawn, unless 
the powers of man himself, so far as these come into play in 
personal services, are discriminated from the external com- 
modities and claims, which alone can be properly capital. 
Labor is the exertion of physical and mental powers for the 
sake of a return, which is wages : Capital is some product, 
always a commodity or a claim, reserved for the sake of an 
increase to present values through its employment produc- 
tively, which increase is called Profits. Personal powers 



CAPITAL. 253 

cannot be parted with, although their exercise gives la.th to 
value ; capital can always be parted with, and become fruit- 
ful in the hands of another. "When it is said that a young 
man's integrity, or his acquired skill, is his "capital," the 
word is used in a metaphorical, and not in a scientific sense ; 
since the meaning is simply, that these qualities are like capi- 
tal in some respects. Mr. Carey is careless of this impor- 
tant distinction, and defines capital as "the instrument by 
means of which man obtains mastery over Nature," includ- 
ing in it the physical and mental powers of man himself, 
and thus hopelessly confuses the boundaries between capital 
and labor. Mr. Macleod defines capital as "any economic 
quantity used for the purpose of profit," making it expressly 
inclusive. of professional talents, and this opens his defini- 
tion to the previous objection. Our definition seems to have 
the merit at once of distinctness and comprehensiveness : it 
will cover all the cases, obviate many difficulties, and take 
the life out of many disputes. 

It is plain from what has already been said, that the new 
class, Capital, is a smaller class under the old great class, 
Values ; and that the same article of value may be at one 
time capital, and at another non-capital, according to its 
destination. Onby that value is capital, that is reserved as 
a means to further production, and from whose use accord- 
ingly an increase or profit is expected. A value must be 
contemplated as existing, before it can possibly become cap- 
ital, because it is a distinct purpose of the owner to use it 
for a profit that capitalizes it, that is, that transforms it from 
a general purchasing-power into a special form of pnrchasing- 
power, Capital. The sole purpose is to use now that value 
in such a way as that a larger value may accrue by means 
of it. For example, money in the hands of individuals is 
sometimes capital and sometimes not, according as tiny pro- 
pose to use it, while the whole money of the nation consid- 
ered as belonging to the whole nation, is wholly capital. 
because the only motive in minting it is to increase by means 



254 POLITICAL ECONOMY. 

of it the national gains. So credits, that is, claims for the 
payment of money or other valuables, are capital or not, 
according as thej r are kept for convenient use, or for accru- 
ing profit. Many products are devoted to the gratification 
of present desires, without any reference to the rendering of 
future services by means of their help, and such products, 
though valuable, are not capital at all : many other products, 
such as tools, raw materials, and moneys loaned on interest, 
are altogether capital. Any piece of transferable property 
may become capital, either as retained by the present ownei 
for the sake of a greater than its present value to be obtained 
by means of it, or as purchased by another person with the 
same intent ; and the whole mass of capital, then, in any 
country is the. whole mass of those products, of whatever 
kind, which are destined in the mind of their owners to be 
retained as an aid towards rendering future services to 
Society. 

2. How does capital arise? We have seen that there are 
obstacles which lie in the way of the gratification of men's 
desires in all directions, and that these obstacles can only be 
removed by human effort. "When a man devotes himself to 
one set of these obstacles, with a view to surmount them, he 
is not long in discovering, that if he had certain tools, his 
work would be greatly facilitated ; and having discovered 
that, it will not be long before he will attempt himself, or 
induce others to attempt, to invent such tools. The beaver 
gnaws down the tree with his teeth, from generation to gen- 
era tiou ; but man is a being more nobly endowed than the 
beaver, and no sooner had he occasion to fell trees, than 
something of the nature of an axe suggested itself to his 
ingenuity. It is true, that his earliest attempts at axe-mak- 
ing were probably of the rudest sort, but just as soon as 
any thing was devised, whether of flint or shell or metal, that 
rendered easier the labor of felling a tree, capital made a 
beginning along that line of obstaJes. Among the more 
gifted races, progress in this direction was perhaps more 



CAPITAL. 255 

rapid than we are wont to think it was, since Tubal-eain, 
even in the times before the flood, is said to have " ham- 
mered all kinds of implements out of coj per and iron ' ' 
(Gen. iv. 22). 

We are at no loss, then, to explain the origin of capital : 
it is found in the motive that exists everywhere, and that 
always existed, to lessen, if possible, a given irksome effort 
that is the condition of a given satisfaction. Tools are 
invented and employed for no other reason than this, that, 
by means of their help, the human effort is lessened rela- 
tively to the given satisfaction. The powers of Nature, such 
as those which make the grain grow, bring the tree down, 
turn the water-wheel, impel the locomotive, and send the 
message round the world, all stand ready to slave in the 
service of man ; but in order to make their aid available for 
human purposes, there must be a plough, an axe, a wheel, 
an engine, an electric machine. These, and all other imple- 
ments whatsoever, from the tiniest needle to the most pon- 
derous engine, are products created and retained for the 
sake of further production. They are capital. They are 
not capable of yielding in themselves an ultimate satisfac- 
tion to human wants, but they mediate between the powers 
of Nature, which they enable us to make available for our 
purposes, and those ultimate satisfactions. This origin of 
capital gives the key-note to its universal use and indefinite 
expansion : easier methods are always in order, finer imple- 
ments take the place of coarser, and machinery of some 
sort is forcing its way more and more into all the fields of 
hand labor. Since it requires tools to make tools, the prog- 
ress of this branch of capital was comparatively slow at 
first ; but, since every advance in mechanical contrivance 
makes still further advances easier, there is a natural ten- 
dency, which facts abundantly exemplify, to a more and 
more rapid progression in the number and perfection of all 
implements of production. The same motive that impelled 
to the first invention, has impelled to the whole series ol 



256 POLITICAL ECONOMY. 

inventions since, and will constantly impel to further inven- 
tions till the end of time. This motive, — and there is no 
motive that actuates man more universal, — is, to lessen the 
onerous effort of human muscle, and to throw upon the ever- 
willing shoulders of Nature more and more of the burden 
of production. Every step of this progress gives birth to a 
larger and larger proportion of satisfactions relatively to 
efforts ; marks an increasing control on the part of man 
over the powers of Nature ; and gives promise for the time 
to come of greater advantages still in both these two direc- 
tions. And it is because capital brings gratuitous natural 
forces into service, and the more so as capital progresses, 
that the value of those things created -by the aid of capital 
tends constantly to decline as compared with the value of 
those things, in whose production capital less conspires ; and 
in the chapter following the next will be developed from this 
point one or two important laws of value. 

3. How capital works may perhaps be best illustrated by 
the action of railroads, which are an important part of the 
capital of every civilized country. The general function of 
all capital is to facilitate production, to make exchanges easy 
and many by removing obstructions of all kinds and lessen- 
ing onerous human efforts ; and the railroad is a piece of 
capital, a product, designed to lessen the natural obstruc- 
tions to exchanges made by time, distance, and inequalities 
of earth-surface. The ocean is somewhat like the railroad 
in these respects, with this peculiarity, that the ocean road- 
way fortunately costs nothing, it is not a product, and so it 
is free to all users. The railroad is a valuable thing, and 
charges must be made to them who use it to re-imburse those 
who constructed it, but it is a grand law of this form of capi- 
tal certainly, that less and less needs to be charged to each ton 
of freight and to each passenger carried as the exchanges 
are multiplied, to further which the railroad is built as a 
means. Edward Atkinson has gathered figures from official 
sources, which put this law beyond the reach of question. 



CAPITAL. 257 

For example, in the teu years 1870-70, the Lake S.iore and 
Michigan Southern railroad increased its freight traffic 202% , 
tsed its charge per ton per mile ol^°f (from one cent and 
a half to .04), and increased its earnings from freight 22^%. 
In the eleven 3-ears 1800-79, the New York Central and Hud- 
son River railroad increased its freight traffic 289%, decreased 
its charge per ton per mile (yl°f (from 2.38 cents to .79), and 
increased its earnings 30%. One cent a ton per mile deduc- 
tion on 8,000,000 tons moved 1,300 miles is a saving to the 
transporters of $104,000,000 ; so that, the interest of the rail- 
road is equally the interest of the whole country. The use of 
capital lessens the cost of every thing in whose production 
the capital conspires ; and the railroad is able steadily to re- 
duce its charge for transportation, because it learns by expe- 
rience to throw more and more of its work upon the free 
forces of Nature, and because the people intrust it constantly 
with more work to do, which enables its agencies to be more 
continually and economically employed. 

Railroad mileage more than trebled in the United States 
from New Year's 1805 to New Year's 1882, that is to say, 
went up from 33,908 to something over 100,000 miles. If 
we suppose the average cost of the round mileage to have 
been 830,000 a mile, then the whole cost of the roads would be 
$3,000,000,000, truly a costly piece of capital. But then, it 
can be proved, that the actual reduction in charges on freight 
alone in ten years from the rate in 1870 to the rate in 1879 
more than equals that whole cost of the roads ! The declared 
value of the grain, meat, and daily products, exported from 
the United States in 1880, was $389,000,000, and their weight 
9,400,000 tons ; now, if this weight were moved on the aver- 
age 1,300 miles to the seaboard, and if there were a saving 
in railroad service of one cent a mile per ton a3 compared 
with 1870, then the saving constituted 26.72% of the total 
value of those exports. As we saw in the last chapter that 
physical labor consists simply in moving things with reference 
to an economic result, so we may now see that railroads and 



258 POLITICAL ECONOMY. 

many other forms of capital are contrived simply to help to 
move things. On the average each man, woman, and child, 
in the United States, eats very nearly a barrel of flour a year, 
and so 50,000,000 barrels of flour have to be moved each 
year to the places where the people take their food ; and it is 
a comfort to think that such is already the perfection of our 
railroad system, that a barrel of flour may be moved from 
Chicago to Boston, 1,000 miles, for fifty cents, and from 
almost any point in the North-west where wheat is ground 
to almost any point on the Atlantic seaboard for less than a 
dollar. An adult in good health eats nearly three pounds 
of solid food a day, or 1,095 pounds a year, and such are the 
present appliances of capital that a day's wages of a common 
mechanic in Massachusetts will pay for the transportation of 
his year's bread and meat from Chicago to Boston. 

Such a startling result as an average annual reduction, of 
the cost of railroad service of $320,000,000 for the decade 
ending in 1880, a sum more than equal to the average annual 
revenue of the United States in the same time, has not been 
reached except in spite of artificial obstacles of legislation. 
A tariff tax of $28 a ton on steel rails imported doubled the 
price during a part of the decade of all steel rails used, and 
so far forth hindered the beneficent 'action of this form of 
capital. Then railroading is a new thing in the world, and 
of course there has been much blundering in management, 
and more blundering in Congress and in State Legislatures 
in all sorts of legislation both hostile and favorable. After 
all, the railroads have paid for themselves over and over 
again, in the lessened cost of all products, in the multipli- 
cation of exchanges of every name, in the rise in the value 
of old lands and in the extension of profitable cultivation to 
new lands, and in manifold other ways which need not now 
be told. Hence they illustrate perhaps better than any thing 
else the way in which capital in general works to increase 
the power and multiply the satisfactions of men. 

4. As we have just seen that capital in the form of rail- 



CAPITAL. 259 

roads soon pays for itself and becomes a perennial source of 
profit, so let us now see that capital in all forms docs the 
same thing, and at the same time opens the way for new 
savings and new profits. As railroad begets railroad, so 
capital in general breeds capital. Even the ordinary annual 
interest of money, if regularl}' compounded with the princi- 
pal, will double that principal in a very few years. But tne 
rate of interest, which is usually reckoned b} 7 the year, must 
not be confounded with the rate of profit, which may accrue 
by the day, by the week, by the month, or shorter irregular 
periods. The current rates of profit reckoned by the year 
are always much higher than the current rates of interest 
reckoned in the same way ; for otherwise men would never 
borrow money for the sake of carrying on their business. 
Some interesting facts are mentioned by Macleod (Econ. 
Phil. p. 219) as occurring in the retail provision trade of 
Paris. Turgot instances that, in his time, the money lenders 
charged the petty dealers two sous a week for the loan of 
three francs. That is interest at the rate of 173% per 
annum. But if the dealer sold his three francs' worth of 
victuals for three francs and a half everyday, as is likely, 
his profit, omitting Sundays, would be at the rate of 5,2 1G% 
per annum. That this way of doing business is still kept 
up in Paris, as it used to be also in London, appears from 
a speech of a member of the late Legislative Assembly of 
France, who says, that a five-franc piece borrowed in the 
morning will buy provisions that may be sold for eight francs 
in the course of the day ; twenty-five centimes are paid in 
the evening without complaint as the interest on the money ; 
that is at the rate of 1,800% per annum ; but the rate of 
profit is 21,G00% per annum, or twelve times the rate cf in- 
terest. Even at a very small ratio of profit to principal on 
each transaction, a money capital turned quickly over accu- 
mulates with a startling, almost incredible rapidity. 

Equally wonderful is the power of capital in the form of 
tools and machines to hasten, facilitate, and accumulate pro- 



260 POLITICAL ECONOMY. 

diction. Perhaps as good an instance as any is the trowel 
of the mason and plasterer. It is nearly his only tool, but 
an absolutely indispensable one. Without it he can do noth- 
ing at all : with it he can do a great deal. Time seems to 
have made but few improvements in this primitive, instru- 
ment ; its cost is slight, say one dollar ; it will last a loug 
time, say an entire year ; it is almost constantly in the 
mason's hand from morning till night, and so is earning a 
profit all the time ; for it must be remembered, that the more 
constant the use of any form of capital, the sooner it pays 
for itself and the more profitable its agency becomes ; and 
thus this case of the trowel may serve as an illustration of 
the influence in production of all forms of capital from the 
simplest to the most elaborate. Every tool or machine, 
itself capital, enables the laborer to avail himself of some 
free natural force to aid him in his work, and so the three 
requisites of production, labor and capital and power-agents, 
are always united in the use of any tool. 

5. The influence of capital on production will be more 
fully seen as we examine the source and the reward of the 
capital. The source of capital is always in Saving or absti- 
nence. Even Cicero very truly says: "Optimum et in 
privatis familiis et in republica vectigal est parsimonia." 
Frugality is the best means of revenue as well in private 
families as in the State. It is a distinct act of will that 
transforms any valuable thing, whether money or other, into 
an instrument of future production ; because the valuable 
tiling might be used or sold for the purposes of present enjoy- 
ment ; and if it be set apart in order to help get something 
:eady to sell in the future, the owner must have some reward 
for this act. The reward of capital is technically called profits : 
just as the reward of labor is technically called wages. Profits 
are the legitimate reward of a service just as much and in the 
same sense as wages are the legitimate reward of a service. 
The distinctive service of the capitalist as such, as distin- 
guished from the service of the laborer, consists in his volun- 



CAPITAL. 2G1 

taiy abstinence from the use and enjoyment of that which he 
contributes in aid of further production. If a man puts a 
thousand dollars, which he might spend upon his immediate 
gratifications, into a machine to be used in his business, the 
money immediately becomes capital ; the owner piactises 
abstinence, and for this abstinence justly expects a reward. 
This reward we call profit. The expected profit is the cnly 
motive for the abstinence. lie will not be content simply to 
get his thousand dollars back, for that he has now: he must 
have In 3 thousand dollars with a profit. Suppose A to be a 
manufacturer of fiax fabrics, B to be a farmer in his neighbor- 
hood, and C an expert mechanic acquainted with the current 
modes of spinning and weaving flax. A has a capital of 
§10,000 invested in his business, in buildings, machinery, 
materials, and wages-fund, which nets him $1,000 a year 
clear profit. At the end of the year, the question with him 
is, whether he shall spend this $1,000 unproductively in im- 
mediate gratifications, or, adding it to his capital stock, 
increase his business with it. If he concludes to do the 
latter, he must forego the use and enjoyment of his $1,000 
for the present, he must practise abstinence ; and this he will 
not do, and ought not to do, except in view of increased 
profits to accrue from his business at the end of the next 
year. If more flax is to be spun and woven in his factory, 
more money must be invested to buy more materials, to pay 
more laborers, or to paj T for more or better machinery. His 
contribution to the prospectively increased production is 
$1,000, transformed by his intention from simple property 
to capital, devoted to production by a voluntary abstinence 
from its present use and enjoyment, in view of a future rc- 
v>ard or profit. It is a service rendered by one man to a 
joint process to be performed by many, and gives him a just 
claim to a portion of the product. Is exertion irksome ? So 
is abstinence. Are wages legitimate? So are profits. I> as 
a farmer might devote all his fields to growing food and fruits 
for the gratification of himself and family, but since A now 



262 POLITICAL ECONOMY. 

wants more flax fibre for his factory, lie gives up a part of 
his acres to growing flax, and this becomes. a part of A's 
capital in the form of raw material ; and the money received 
for it may become capital in B's hands by being spent either 
in agricultural improvements, or in bu3 T ing additional land, 
The mechanic C, by giving time, exertion, and money to the 
work, may invent an improved machine for spinning flax, to 
be introduced into A's factoiy. The machine becomes a part 
of A's capital, and the money paid to C for his machine is 
partly wages, a reward for the labor bestowed on its construc- 
tion, and partby profits, to replace to C the money used in 
making the machine, together with a reward for his absti- 
nence from the use of this money until the machine was sold. 
Thus we see that capital, whether in the form of wages-fund, 
materials, or implements, is always the result of abstinence ; 
and that whoever abstains from the present enjoyment of any 
thing, in order that that something may contribute to a future 
production, renders an essential service ; and, consequently, 
that the reward of such abstinence, or profit, is just as legiti- 
mate as are wages. 

This is very clearly seen in the common case in which one 
man loans capital to a second,. to be used by that second in 
his own business. Brooks has a thousand dollars in hand 
which he is at liberty either to enjoy unproductively, or to 
employ himself productively, with the assurance of a profit ; 
but is willing to forego the use of it for a year in favor of 
Smith, who is anxious to enlarge his business. Brooks' 
abstinence is a clear service to Smith ; and at the end of the 
year, therefore, Smith not only refunds the thousand dollars 
borrowed, but also sundry other dollars besides as a specific 
reward for this specific service. If Smith keeps the money 
ten years or twenty, it is no more than just that he should 
pay this sum every year till the principal is refunded, because 
the service is every year repeated, the abstinence is still prac- 
tised in his favor. Therefore, capital once acquired by absti- 
nence, becomes, if the abstinence be continued, a legitimate 



CAPITAL. 263 

source of perpetual revenue to the owner, as wcL as a per- 
petual source for the maintenance of laborers. Whoever 
transforms his property into capital, establishes thereby a 
permanent fund whence he may draw an income, and labor- 
ers support, in perpetuity; because the capital, though con- 
stantly disappearing in production, as constantly re-appcais 
in products, with profits added : a fact which shows the folly 
of the popular opinion which regards more favorably the man 
who spends his money freely and unproductively, than the 
man who, turning his money into capital, building a mill, or 
making other permanent investments, creates by that means 
a fund in the community, out of which permanent wages and 
permanent profits can be paid. The strength of the motives 
to abstinence in any country will depend largely upon the 
character of the government, and the organization of society 
there ; these motives being generally strongest where liberty 
of action, equality of privileges, and security of property 
are the greatest. 

6. It is time now to observe the forms which capital 
assumes. The whole class Capital is divided into two 
sub-classes, namely, Circulating Capital and Fixed Capital. 
Circulating Capital comprises all those capitalized products, 
the returns fur the sale of which are derived at once and 
once for all: Fixed Capital comprises all those capitalized 
products which are purchased or held with a view of deriving 
an income from their ?<se. " The test of fixed and circulat- 
ing capital is the inquiry, Are returns secured by the reten- 
tion, or by the transfer, of the particular product? Tools 
in the hands of him who uses them are fixed, in the hands 
of him who manufactures them, circulating capital." (Bas- 
com's Pol. Econ. p. 71.) Circulating Capital will be found 
in the following forms : (1) all raw materials ; (2) all wages 
paid out in view of an ultimate profit ; (.')) completed pro- 
ducts on hand for sale ; and (4) all products bought and 
held for the sake of resale. Fixed capital will be found 
under one or other of the following heads : (1) all tools and 



264 POLITICAL ECONOMY. 

machinery ; (2) all buildings used for productive purposes ; 
(3) all permanent improvements on land ; (4) all invest- 
ments in aid of locomotion, such as railroads, canals, ships, 
and every thing subsidiary to these ; (5) all products loaned 
or rented, or retained for that purpose ; and (G) the national 
money as a whole. 

In manufacturing and mining industry, a new term has 
come into common use within the past few years, which needs 
to be explained in this connection. The term is '-'■plant." 
The plant is made up wholly of items of fixed capital, like 
machinery, improvements, personal property (not supplies), 
draught animals, fixtures, and so on, but does not include 
the real estate of factories or the mine itself as a mineral 
yielder (Dr. Pumpelly in Census of 1880) . 

As civilization advances, and the aggregate of all forms 
of capital enlarges, there is a tendency towards a relative 
increase of fixed capital, as compared with circulating. 
This disproportion would become greater than it actually 
does become, were it not for the fact that almost all forms 
of fixed capital are subject to a rapid deterioration of value, 
due partly to usual wear and tear, and partly to the progress 
of improvements, in consequence of which, what is old soon 
becomes antiquated. In nothing, perhaps, is actual cost of 
production so useless a guide to present value, as in ma- 
chinery, and other forms of fixed capital. New and easier 
methods are being constantly invented, and the result of 
their introduction is to lessen the value of the old apparatus, 
and consequently to lessen the value of the aggregate accu- 
mulations of fixed, as compared with the current value of 
circulating, capital. Production looks perpetually to ends ; 
aud estimates means just in proportion to their present effi- 
ciency to reach the end proposed. If the end can be reached 
by a cheaper process, in any department, the value of the 
former means will fall ; and the value of the former results 
secured by these means, other things being equal, will fall 
also. About the middle of the century it was estimated by 



CAriTAL. 2G5 

Mr. Carey (Social Science, III. 56), that tbe proportion of 
circulating capital to fixed in France, was one to eight ; in 
England, one to three ; and in the United States, three 
to five ; proportions which he believed to be much higher 
in favor of fixed capital than formerly obtained in those 
countries. It is also worthy of notice, that there may be a 
too rapid and general conversion of circulating into fixed 
capital for the present best interest of certain classes of per- 
sons. If all carriage-makers, for example, instead of sell- 
ing their carriages outright, and making new carriages with 
the proceeds, should let tbem out on hire, receiving their 
value only in instalments, it is evident that they could not 
make so many carriages as before, and that their workmen 
would suffer by the change of method. So too, if, while a 
national debt is being contracted for war expenditure, gen- 
eral business become dull, and capitalists, preferring the 
steady income from the national bonds to the uncertain gains 
of business, largely invest their circulating capital in bonds, 
it is very clear that many laborers would suffer a disadvan- 
tage. "When man}- of the small farms of Scotland were 
turned into sheep walks, and some of the circulating agri- 
cultural capital was used to enlarge estates with that view, 
it was said, that there was much temporary distress among 
the agricultural population. In the ten years, 1871-81, 
828,000 acres of grain-land and 228,000 acres of green- 
crop land in Great Britain were converted into permanent 
pasture, and an annual return of £8,000,000 formerly de- 
rived from these crops thereby disappeared (James Caird). 
Pasturing, whether of sheep or cattle, employs far fewer 
laborers thax. culture. The wonderful productiveness of 
railroads as a form of capital has already been noted ; and 
yet uven railroads may be built, have been built, too fast 
and too far for the best interest of capital as such ; because 
a railroad as fixed capital becomes a fixed fact, and cannot 
change its form and place, as the circulating capital out of 
which it was built was well able to do ; and therefore, a mania 



266 POLITICAL ECONOMY. 

for building railroads is to be dreaded like other manias, lest 
it withdraw capital too rapidly from a more profitable circu- 
lating form and put it beyond recall into a fixed form. 

7. We come now to the most important point in this chap- 
ter, namely, the relations of capital to labor, and to that 
law of the distribution of the products between capitalists 
and laborers, which was first propounded by Mr. Carey, 
and which fully justifies his claim to be regarded as an 
important contributor to the science of Political Economy. 
We shall unfold the whole matter in our own way, and in 
strict accordance with the principles already laid down. 

Capitalists are all those who have laid by some valuable 
tilings (the fruit of previous labor and capital) to be used 
as a means for further production ; but this further produc- 
tion cannot be had, unless labor also be united with the cap- 
ital , since capital by itself alone can produce nothing ; and 
consequently, capitalists are the principal people who desire 
steadily, and are able to pay for, the services of laborers. 
It is true, the capitalists are looking only at profits, just as 
the laborers are looking only at wages ; but the possession 
of capital and the desire for profits put the capitalists into 
a good position to make exchanges with laborers, whose 
desire for a return in the shape of wages puts them into a 
good position to make the exchanges. Capital does not hire 
labor, as many economists phrase it ; persons and not things 
are ultimate in Political Economy, and personifications of 
things are always confusing in science ; but capitalists, be- 
cause they are such, and because capital not united with 
labor both remains barren and becomes less, desire to make 
a trade with laborers, who, desiring wages for their part, 
are able to work up the raw material, tend the machinery, 
and dispose of the products, and thus enable the capitalists 
to realize profits. It is the old case over again of a mutual 
sale, — of two persons standing opposite each other to make 
a mutually advantageous trade. There can be no deep- 
seated antagonism between capitalists and laborers, any 



CAPITAL. 267 

more than between any other two classes of men able and 
anxious to make exchanges with each other. Unless there 
may be profits there will be no capital, because men will not 
practise abstinence without the hope of a reward ; but also 
without the laborers there can be profits by no possibility, 
since these are the agents by whom profits are realize'! ; and 
therefore the very presence of capital in any communiry 
becomes expressed through the capitalists as a demand for 
laborers. The more capital accumulates in an} 7 community, 
the greater must be the demaud for laborers ; and the greater 
the demand for laborers, the greater so far forth the reward 
of labor, or wages ; and therefore laborers as such are 
interested in nothing so much as in the increase of capital 
through large profits, and in the strength of those motives 
to abstinence in the minds of capitalists, out of which cap- 
ital springs. 

Laborers are every way the economical equals of capital- 
ists. Laborers offer a service to capitalists, and capitalists 
offer a service to laborers. They stand man to man. They 
exchange to the mutual advantage of both, and one is as 
independent as the other. The workmen may hold up their 
heads. They offer an honorable sendee on which capital 
is absolutely dependent for its existence. They offer a ser- 
vice as legitimate and as respectable, as that of the clerg} T - 
man who preaches their sermons and baptizes their children, 
and are paid on the same general principles. Let no em- 
ployer feel too much exalted towards his workmen. The 
money he renders them is no whit better than the work they 
render him. The exchange is honorable, and the parties to 
it on the same level of advantage. They are as necessary 
to him as he is necessary to them. As a capitalist he can- 
not exist without them ; as laborers they cannot exist with- 
out him. He is one blade of the shears, they are the other 
blade, and it takes both blades to cut. It is absurd to ask 
which blade cuts most, because there is no cutting at alb 
unless both blades work together. 



268 POLITICAL ECONOMY. 

But this is not all. The next step in this course of rea« 
soning is still more interesting and important. Capitalists 
and laborers are not only essential to each other, as are also 
all other parties to a trade, but besides each of these classes is 
constantly bettered by the prosperity of the other. If capital- 
ists are realizing a good round rate per centum, each will be 
desirous to enlarge his business, whether as active operator 
or lender, and to employ as much of his income as possible 
in the form of new capital. Of course this process increases 
capital. If men constantly put their profits only back into 
their business, which, under a high rate per centum, they are 
strongly inclined to do, capital increases rapidly. But in- 
crease of capital is, in its very nature, an increased demand 
for laborers. An increased demand for laborers, other 
things being equal, infallibly raises wages ; just as an in- 
creased demand for any thing else raises its value. There- 
fore, laborers are directly interested in the prosperity of 
capital, because the prosperity of capital leads to its in- 
crease, and its increase leads to higher wages. As a mat- 
ter of fact, high profits and high wages, so far from being 
incompatible, usually accompany each other. On the other 
hand, the capitalist is equally, though perhaps not so direct- 
ly, interested in the prosperity of his laborers. It is not a 
dead loss to him by any means that he now has to pay 
higher wages than formerly, because this is no game of 
grab, in which what One gains another loses ; it is rather 
a case of joint production, in which two parties conspire, 
and in which whatever helps to enlarge the gross amount 
produced, helps to increase the share falling to each party. 
If then, as they undoubtedly do, high wages tend to make 
the workmen more intelligent, industrious, frugal, and in- 
ventive, they are not a loss to the capitalist, but a gain. 
Larger gross returns are thereby secured. Improved intel- 
ligence and skill of workmen affect production, just as im- 
proved machinery, secured by the aid of capital, affects it. 
Both alike enlarge the aggregate of products to be divided 



CAPITAL. 2C9 

between capitalist and laborer. Now, in th» division o' 
products tbus rendered larger in amount, what binders capi- 
tal from getting a fair share? When a firm is prosperous, 
are not all tbe partners benefited? All tbat is produced is 
to be divided ; if more is produced, more is to be divided. 
Intelligent, industrious, skilful workmen, are best for produc- 
tion, are best for tbe capitalist, and therefore, high wages, 
which tend to make them so, and which are a consequence 
of their being so, are to be paid without grudging. When 
the matter is sifted to the bottom, it is seen that capital is 
as much interested in the prosperity of labor, as labor is 
interested in the prosperity of capital. All legitimate inter- 
ests are in harmony. 

But the last step in this course of reasoning is the most 
important of all. We are now to prove that all increase of 
capital, ivhile it redounds to the benefit of capitalists, redounds 
in a still hirjher degree to the benefit of laborers. As a 
country grows older and richer, and as the world grows 
older and richer, there is a constant and general tendency, 
subject indeed to some temporary interruptions, towards a 
decline in the rate per centum for the use of capital. The 
rate of interest on money loaned, and the rate of profits on 
capital used, tend all the while to go down as capital is accu- 
mulated. No one will dispute this as a simple fact of his- 
tory. Three centuries ago in England the legal rate of 
interest was 10 °f , while now the current rate is about 4 in 
that country, and has been considerably lower than that 
in Holland, although in both countries there was some rally- 
Lug of the rate as the last quarter of the century set in. 
During the first years of mining operations in California, 
from 8 to 15 % a month with security of real estate was 
paid for the use of money, which enormous rates long ago 
declined to rates not much higher than those paid in tbe 
States along the Mississippi River, and in these also the 
rates are approximating those current in the older Eastern 
States. This admitted fact, that, as capital increases in 



270 POLITICAL ECONOMY. 

amount, the rate for its use declines, is just what we might 
expect as a corollary from the propositiou, that, other things 
being equal, an increased Supply of any thing means a les- 
sened Value for any specific part of it. But, while there is a 
less rate of interest or profit on each hundred invested, 
there are also many more hundreds, and consequently there 
is an absolute gain to capitalists as a class, and both an 
absolute and relative gain to the laborers as a class. Let 
us take to figures. Let $100,000,000, while the rate of 
profit is six, and $500,000,000, when it has fallen to foui, 
be expended in payment of simple wages. So far forth, 
the value of the products to be divided yearly, will be repre- 
sented respectively by $106,000,000 and $520,000,000. In 
the first case, $6,000,000 is profits, and $100,000,000 is 
wages. In the second case, $20,000,000 is profits, and 
$500,000,000 is wages. Here is an absolute gain to capi- 
talists. Profits have gone up from six to twenty millions, 
and are more than three times as great as before. But wages 
have gone up both absolutely and relatively. They have 
risen from one hundred to five hundred millions, and are five 
times as great as before. Profits have risen in the ratio of 
one to three, but wages in the ratio of one to five. This 
arithmetical example is put for the sake of illustration, but 
the principle holds good in every case where the rate per 
centum goes down in consequence of the increase of capital, 
and therefore the advantages of ever enlarging capital are 
even greater to the laborers as a class than to the capitalists 
themselves. Most assuredly, if capital now takes less out 
of every hundred, more is left to labor. Profits and wages 
are reciprocally the leavings of each other, since the aggre- 
gate products created by the joint agency of capital and 
labor are wholly to be divided between them. This demon- 
stration is extremely important ; for it proves beyond a cavil, 
that the value of labor tends constantly to rise, not only as 
compared with the value of the material commodities which, 
by the aid of capital, it helps to create, a truth we have 



CAPITAL. 271 

seen before, but also as compared with the value of the jse 
of its co-partner capital itself ; and therefore, that there is 
inwrought in the very nature of things a tendency towards 
equality of condition among men. God has ordered it so. 
Self-interest is indeed the mainspring of movement in the 
economic world ; but no man can labor intelligently and 
productively under its influence, without at the same time 
benefiting the masses of men. His very savings, produc- 
tively employed, are poor men's livings. 

8. While capital always takes its origin in the frugality of 
men and women, its profitableness and power depend very 
much upon the degree of skill with which it is used. There 
is no inherent power in capital to work independently for 
the welfare even of the people whose choices have called it 
into being, for it must be remembered that capital, potent 
as it always becomes in skilled hands, is only a means for 
further production. The place that capital shall hold, then, 
in an} 7 country, will depend very largely on the character- 
istics of the people there ; first, on their estimate of the 
future as compared with the present, and consequently on 
their disposition to save, and second, on their ability to 
handle what has been saved so that it shall pay tribute to 
a brisk aud wide production. In both these respects, the 
people of the United States are perhaps as fortunate as those 
of an}- other country. As a rule, our people are frugal 
and thrifty ; and while the necessaries of life no longer 
content them, and the luxuries of one generation become 
the common comforts of the next, which then requires 
and secures new luxuries, the statistics of savings-banks, 
the lists of investors in government and other stocks, many 
new railroads, innumerable new and improved farms, and 
other forms and signs of capital, all show that the saving is 
silently going on everywhere. Besides, our people are inven- 
tive, that is, they know how to make natural forces do more 
and more of their work ; they are bold, that is, they are will- 
ing to risk capital on every rational chance of a profit ; thev 



272 POLITICAL ECONOMY. 

combine easily their capitals, and diverse personal abilities, 
in great undertakings ; they are not afraid of each other's 
competition, though they are foolishly afraid at present 
of the competition of foreigners ; they have learned to com- 
bine cheapness in industrial outlay with vigor of industrial 
enterprise, so that, in the general manufactures of Massa- 
chusetts, for example, the fixed and quick capital employed 
is only about one-half the value of the annual product, and 
even in the cotton factory the capital only about equals the 
annual product ; the ratio of capital to product is higher in 
mines than in manufactures, — for instance, in the census 
year 1880, it took 62^ cents' worth of capital to bring out 
one pound of copper worth on the average 17.46 cents, in 
the U.S. mines east of the 100th meridian; and then too, 
our people as a rule rally quickly from industrial failure and 
times of depression. 

The greatest fortunes in this country in our time have 
been realized in connection with the investment of capital 
in the means of transportation. Nature seems to be partic- 
ularly pleased to have her roughnesses smoothed out, and 
her distances practically shortened ; and the rewards of those 
who have a genius for this work, or ability to combine into 
one grand system of benefit the scattered and thus subor- 
dinate efforts of others, are very large indeed ; and yet, the 
public advantage in these cases is incomparably larger than 
the private emolument of the projectors, and so far forth 
the telegraph magnates and the railroad rnillionn aires rruy 
be held to be public benefactors. 

9. It must follow from all that has preceded, that the 
vast destructions of war are* mainly a destruction of capital. 
War cannot be carried on except by means of property act- 
ually existing, nor for any length of time or to any great 
extent except by means of property existing in the form of 
.capital. These savings previously employed productively 
are the source whence war-supplies are drawn ; the capital 
is absolutely destroyed; the war-debt remaining is only a 



CAT1TAL. 273 

memorial of this destruction, and an obligatioi resting upon 
sombody to create new capital with which to replace the old ; 
the debt docs not carry on the war, but transfers the capital 
from individuals to the government ; and war, accordingly, 
is the greatest enemy to exchanges, because it annihilates 
a portion of the central agencies which carry them forward. 
We may gather up iuto the following propositions the sul>- 
stance of the present chapter : — 

1. All capital is products saved for further use in produc- 
tion. 

2. The motive for the saving is the increase accruing. 

3. Mere hoards are not capital, but become such when lent 
for interest or otherwise used productively. 

4. TJte more capital the more use of free Nature, and the 
more demand for paid laborers. 

5. The more capital the larger the aggregate of values pro- 
duced, and the less the value of each particular of the aggre- 
gate. 

6. TJie more capital the higher the rate of wages, and the 
loicer the rate of profit. 

7. Profits are the leavings of wages. 

8. Fixed capital increases relatively to circulating, and both 
are the poor man's friend. 

9. War destroys capital, communism threatens it, strikes 
impair it, ivhile peace and good-will reduplicate it. 



274 POLITICAL ECONOMY. 



CHAPTER VII. 

LAND. 

Labok a ad Capital, two of the three requisites of Produc- 
tion, have now been fully discussed. It remains to treat 
closely of Natural- Agents, the third and last of these requi- 
sites, and more especially of Land, the only natural agent 
that presents elements of dispute and difficulty. It is con- 
ceded by all, that air and light and gravity and electricity 
and other natural powers disconnected with the land are free 
for all to use at will, and that the progress of invention is 
nothing in the world but the shifting off of parts of irksome 
human labor by means of certain forms of capital upon these 
gratuitous forces, which work without money and without 
price. But when it comes to Land, itself originally a natural 
agent of vast proportions, and to such things as waterfalls 
and mines inseparably connected with the land, there ap- 
pears a great diversity of opinion. The Physiocrats thought, 
that land was property in an eminent sense, that it alone 
should bear the weight of taxes, and that indeed it was 
the ultimate source of all values. Henry George thinks, 
that private property in land is an abomination, and " can- 
not be defended on the score of justice." Most, if not 
all, of the second school of economists have regarded the 
amount of land-rents, the value of land products, and the 
value of the land itself, as determined in a quite different 
way from all other values. We must, accordingly, go cau- 
tiously into this topic, and use the best powers we have 
of insight and reasoning, in order to understand it ; and 
if this one condition be supplied, there is no danger but we 
shall reach clear and sound results. 



LAXD. 27") 

Let one thing be premised before we begin, namely, that 
the presumption in science is always against (he existence of a 
few <»dl>jinrj cases, whenever the induction has been lung and 
carefully conducted by many p)ersons, and the generalization 
appears on all other grounds to be sound and comprehensive. 
Jndeed the best test of scientific definitions or generaliza- 
tions is found in those seemingly anomalous cases with which 
all science has to do, and which come with snch apparent 
reluctance under her painstaking classifications ; for, if defi- 
nitions or generalizations reduce into order these outlying 
cases without violence, as well as cover easily the more cen- 
tral phenomena, there is at once created the strongest evi- 
dence of their correctness. Now the questions relating to 
the value of land and its products have been among the 
most vexed questions of Political Economy, have exercised 
a vast amount of ingenuity, aud have led to careful obser- 
vations in the whole field of agriculture, while the divereine 
views that have been taken, the arguments adduced, the 
conclusions drawn, aud the spirit manifested, in these dis- 
cussions, form the most unre freshing portion of the history 
of the science. These questions in their economical aspects, 
however bitterly debated in the past and present, and though 
almost uniformly regarded as anomalous matters to which 
peculiar principles must be applied, are approaching, even if 
they have not already reached, a scientific and satisfactory 
solution. It seems to us that the means arc now at hand for 
combining what is true in all these views, and for settling 
the disputes for all time. We feel sure that all the parties 
are right iu some respects and are wrong in other respects, 
and are not without hopes of being able in this chapt( r to 
reconcile the differences, and to show completely that the 
varying values of land and of its products aud of its rents 
arise and vary from human services rendered and received 
precisely as all other values do, and consequently that our 
previous definitions aud classifications apply here without a 
break. 



276 POLITICAL ECONOMY. 

1. There is one grand distinction to be made at the cut- 
set, namely, that between land as a physical thing, which 
God made and gave to men in common, and land as a valua- 
ble thing, made such through the action of human desires 
and human efforts. It is confusion at this point, that has 
given rise to most of the current fallacies in the land dis- 
cussion. As God made it and gave it to men, the whole 
earth was one vast natural agent. Every thing on its sur 
face and underneath its surface was plainly free to all com- 
ers to use and enjoy, just as the air above its surface was 
and still is free to all for breathing, ballooning, and all 
other purposes for which air can be used. The spontaneous 
fruits of the earth, and the manifold powers of the earth, 
had indeed for the first men a great utility, but from the 
nature of things could have had no value at all. Nor was 
there any provision or occasion at first for particular owner- 
ship of separate parcels of the land itself. The idea of value 
could not have attached to any portion of land on which 
no human efforts had been expended : no man would have 
thought to say to another under such circumstances, "this 
field is mine, and if you will give me something for it, you 
shall have it ; " and even if he had thought of it, that other 
would not give it, because such fields were open on every 
hand gratis. It is not in human nature to render any thing 
for something which may be gratuitously obtained ; and 
therefore value can have no place in a sphere where every 
thing is free. All the portions of the earth's surface, and 
all the parts of a vast system of natural agents connected 
with it, were, in the early ages of its occupation, as common 
and free to all men as most of the natural agents have con- 
tinued to be till this day. 

2. If we may trust the simple record in Genesis, the whole 
earth was given of God without partiality to a whole race 
under the simple direction that they ' ' replenish and subdue 
it." Under the word " subdue," and under the human ser- 
vices implied in that, came in the first idea of ownership in 



LAND. 277 

land. When a family commenced this work of subjugation 
upon a piece of land, when they enclosed it, settled on it. 
tilled it, in any way whatever improved it by an expenditure 
of their own toil, then first dawned upon their minds the idea 
of possession, then first began the land to be possessed cf 
value, since now the family would justly say to another, If 
you want this field, you must give us an equivalent for what 
we have expended on it. If the transfer took place, is it 
not very plain that what was sold, was not so much the 
inherent qualities of the soil as the result of the efforts ex- 
pended in its amelioration? The qualities of the soil lay 
indeed at the foundation of the utility of the parcel ; that 
utility, however, had been increased by the efforts of men ; 
and the value of the parcel, the equivalent rendered in return 
for it, would be gauged, in general, by this second factor in 
the utilit} 7 . The first family received the soil and its powers 
gratuitously, and then expended a series of efforts on its 
improvement ; but a similar series of efforts bestowed on 
other gratuitous land in the neighborhood would make it as 
eligible as this now is ; if, therefore, the family insisted on 
more than an equivalent for their exertions actually bestowed 
on the laud, the other would reply, For as much labor as 
you have given to your land, we can make other free land 
as good as yours, consequently we can give you no more 
than a fair equivalent for your efforts. The value there- 
fore of the parcel sold, would be determined, not by the 
gratuitous elements involved, but by the onerous elements 
involved, that is to say, by the efforts already made by the 
first family in connection with the land, as compared with 
the efforts of the second involved in the remuneration offered. 
The physical thing, land, which cost nothing, has now be- 
come the valuable thing, land, sole'y in consequence of 
human efforts expended, by which f neiv utility has been 
added to the original utility, whatevei that was ; and that 
which the buyer pays for is not the free old but the onerous 
new, and nobody is harmed thereby, and no bounty of 



278 POLITIC; L ECONOMY. 

God is thereby intercepted m its descent to mankind as a 
whole. 

Indeed, it does not seem to be possible in the nature of 
things that God's bounty to the whole race should be thwarted 
b} r any number of individuals through exclusive appropria- 
tion on their part of this bounty. "What they received gra- 
tuitously, they must gratuitously transmit ; what they have 
wrought of permanent improvements on the land, they may 
justly demand a recompense for, and can secure it. By 
their expenditure of efforts they have saved to the purchaser 
a like expenditure of efforts, and for these they can demand, 
and he will be willing to concede, a recompense ; but if they 
go further, and demand pay for the natural qualities of the 
soil which God gave and they have not improved, for the 
sun that shines, and the rain that falls on it, the demand is 
blocked at once \>j the common sense of the purchaser. He 
replies : There is land enough in its natural state, with inher- 
ent qualities as good as yours, the same sun shining on it, 
and just as much blessed rain falling on it, which I can have 
for nothing. I cannot give you something for that which 
costs you nothing, and which I can get for nothing. 

As long as there is abundance of land still open to occu- 
pation, everybody will concede that this line of argument is 
just, and that the general value of land cannot rise above 
the estimated measure of the human efforts actually bestowed 
on its improvement. Though less obvious at first, the prin- 
ciple still holds true after all the land has been taken up. 
Improved farms are always for sale in every county, lands 
once appropriated and ameliorated are perpetually changing 
hands, and some men are always found willing to part with 
land, as with any thing else, for what it has cost them. If 
some proprietors try to exact a prce for their land made up 
of compensation for what they ai ' their predecessors have 
done upon it, and for what they or others have done in some 
proximity to or connection with it, together with something 
added for what God has done for it, their cupidity is usually 



LAND. 279 

thwarted by the readiness of others to dispose of their land 
for a fair equivalent of their own or others' onerous exer- 
tions. Human motives are such, and every thing is so provi- 
dentially arranged, that men cannot, as a rule, sell God'a 
gifts ; it would be derogatory to the Giver, if they could. 

3. What might be thus inferred from the nature of the 
case, is abundantly confirmed by facts. As a matter of fact 
and experience, lands are absolutely valueless until some 
portion of human effort has been expended on them, or in 
reference to them. They may have utility, but the}' have 
no value. Nobody will give any thing for them. The United 
States Government has been selling for years some of the 
best lands in the world for one dollar and a quarter an acre, 
and this after the lands have been surveyed at government 
expense, local governments provided for the settlers, and 
mail facilities and other privileges guaranteed to them. The 
same government is now giving away similar lands in home- 
steads to actual settlers, merely taking for the the title-deeds 
nominal fees, whose aggregate amount does not begin to 
meet the expenses incurred in connection with these lands. 
If lands had value, independent of human exertions, then 
would the English companies and individuals who received 
grants in the 17th century of vast tracts of as fertile land 
on this continent as the sun ever visited in his diurnal revo- 
lutions, have become rich as Croesus ; but these companies 
and individuals did not become rich at all, but rather poor. 
The amount realized from the sale of their lands fell far 
short of re-imbursing the expenses of colonization ; and, 
after incurring debts and endless vexations, most of the 
companies and proprietors were glad to be rid of their lands 
at any price. It is a current proverb now in regard to wild 
lands at the "West, that the more a man has of them the 
worse off he is ; and it is a maxim also in the newer settle- 
ments everywhere, that improved lands are worth the present 
value of the improvements and no more. Mr. Carey irf at 
pains to prove, what might be expected beforehand, that the 



280 POLITICAL ECONOMY. 

value of lands in old countries is now less than they have 
cost of actual human efforts in their subjugation and im- 
provement. The progress of capital and inventions enables 
similar work to be done now at greater advantage, and con- 
sequently the results of former work have fallen in value. 
While, therefore, value in land arises solely in connection 
with human efforts of some sort standing in some relation (o 
that land, it is important to observe that the value is net 
always proportioned to those efforts. The efforts may have 
been misdirected ; the desires calculated upon may have taken 
another turn ; the utility sought to be conferred may not find 
the requisite natural utility underneath ; and so, there is a 
greater diversity in the value of lands than in the amount 
of efforts expended upon them. 

4. It follows from these points made, that, under our divis- 
ion of Values, salable land is a Commodity, just as a horse 
is, or as a steam-engine is. Men did not originally make 
the land, neither do men make horses, nor do men make the 
iron ore, out of which most parts of the steam-engine are 
made ; but men modify the land as God made it, come into 
possession of it in some way, gain for themselves a right to 
sell it, and prepare it to be sold, just as men break and train 
horses and prepare them to be sold, and just as men by 
many processes transform the iron ore into the steam-engine. 
Kicardo * says that ' ' rent is that portion of the produce of the 
earth, which is paid to the landlord for the use of the origi- 
nal and indestructible powers of the soil." As a matter of 
fact, and as we shall see, there are no such powers; and even 
if there were, it would be impossible to separate the portion 
paid " for the use of the original and indestructible powers 
of the soil " from the portion paid as interest on the capital 
expended to bring that land from the state of nature to its 
present state. There is scarcely any land anywhere fit for 
cultivation without more or less expenditure of labor and 
capital upon it ; and the "powers ; ' of the earth, instead of 

1 Principles of Political Economy and Taxation, p. 47, 2d ed., 1819. 



LAND. 281 

being " indestructible," are in a constant process of wearing 
out, and require a constant application of labor and capital 
to keep up their fertility. Besides, who is authorized to take 
pay •' for the use of the original and indestructible powers of 
the soil " ? And who can put himself into a position where he 
can enforce such a claim? Land accordingly, like all other 
commodities, and like all other valuable services, derives its 
utility partly from the free contribution of Nature, and partly 
from the onerous contribution of men ; and, as we saw in 
general in the chapter on " Value," the value of land, as of 
all other services, tends perpetually to become proportionate 
to the onerous human contributions, and not to the aggregate 
utility. There are unique cases in lands, as in other things, 
in which the action of competition may not expel the common 
factor, — nature's contribution, — from all influence on price ; 
but these cases are of no more importance in lands than in 
horses, or other things, and themselves come completely under 
the law of Supply and Demand. Our generalization, there- 
fore, in regard to Commodities, is not at fault when it touches 
upon laud. Land comes under it easily and perfectly. 

5. Moreover, all our other definitions and principles will 
now be seen to include without violence the facts of land. 
Desires first and then efforts, — the utility to each party of 
the respective services, and then the equivalents rendered by 
each, — these are always the elements out of which the value 
of land, the value of its products, the amount of its rent, 
must and do spring ; otherwise, our science would lack the 
generality which alone can constitute it a science. What- 
ever makes land more an object of desire than it was before, 
whether increased fertility or a locatiou now become more 
advantageous, will, so far forth, increase its value ; and 
whatever makes the equivalent offered for it more an object 
of desire to the holder of the land, will, so far forth, dimin- 
ish its value ; while the reversed conditions in each case will 
give of course reversed results. Lands in cities, or in the 
neighborhood of them ; lands of unusual fertility, or pos- 



282 POLITICAL ECONOMY. 

sessing superior building sites ; lands containing rich minc3 
or a remarkable water-power ; sometimes excite extraordinary 
desires to possess thun, and bear in consequence an extra-' 
ordinary price. Still the efforts, care, and abstinence of their 
owners, or of others, have made up an essential part of their 
present utility. They are assimilated in the law of their value 
to other unique products. Of such lands no market rate can 
be predicated, because competition has no play. Their util- 
ity, like every other utility that underlies value, is partly the 
contribution of nature and partly the contribution of man, 
but competition in this case has not its usual opportunity to 
eliminate from its action on price that portion of the utility 
that is the free gift of nature. Their price, consequently, 
is only gauged by the service which the owner can render 
the purchaser by them. With these unimportant exceptions, 
which themselves come with precision under our fundamental 
principles, the value of land follows the law of other values, 
arises only in connection with human efforts, is open to free 
competition, is not affected by the utility that comes from 
nature, rests back upon the right of making efforts for one's 
own welfare, and of not parting with the result except for 
an equivalent, is a clear case of service for service, and 
varies like other values under the law of demand and supply. 
6. It is worthy of remark at this point that the element of 
profits frequently finds place in the price of lands. Land 
<nay be purchased and held a long time with a view to ulti- 
mate profits. Little may have been done for the land origi- 
nally, and little in the mean time, and yet the ultimate price 
be large, because the purchase-money should be replaced with 
compound interest. Abstinence, therefore, which is one form 
of effort, has often to do with the value of lands. Also, the 
efforts of certain men put forth exclusively towards ends of 
their own, as in locating a railroad or a manufactory, may 
benefit the lands of other men as much as efforts put forth 
with that direct intent. These lands become thereby more 
desi -able and therefore more valuable. 



LAND. 283 

7. This brings us to the very important proposition, that 
oy much the largest part of all salable land is nothing more 
or less than Capital. Capital is some product reserved as a 
means to further production ; and valuable land is always 
a product of labor and previous capital, and is generally 
reserved for use in future production, and so is capital under 
the definition. The moment it is recognized as such, the 
difficulties that have perplexed economists and statesman, 
for example, Mr. George in his labored discussions of land, 
and Mr. Gladstone in his passing of the Irish Land Bill of 
J 381, mostly, if not wholly, disappear. Of course, land is 
capital only so far as it is a product ; and here comes in again 
the distinction with which we started, namely, that between 
land as a physical thing and land as a valuable thiug. Not 
all land is valuable, though all land is land: value is often 
superinduced by labor and capital on worthless land, and 
thereafter the two become one in men's minds, and work 
confusion there. But there is nothing unusual in the trans- 
formation of a worthless thing into a valuable thing by the 
action of labor and capital, and the two thereafter becoming 
undistiuguishable : a cherry log, perhaps now worthless in 
the mountain pasture, wnen transported by labor aud capital 
to the cabinet-shop, and transformed b}' the same means into 
a set of furniture, may become very valuable, — the valueless 
physical wood taking on that (now inseparable from itself) 
which makes the two salable. But it must always be remem- 
bered, that value goes as well as comes, and that things once 
salable often become later valueless. 

So too, not all valuable land is capital, but only that large 
portion of it that is worked or leased or held with a view lo 
an ultimate jirojit. A competent authority estimated in 1881 
that the land of the United Kingdom of Great Britain was 
worth £.'5,000,000,000; and there were at the same time 
6,000,000 Inhabited houses, excluding factories and business 
premises and tenements renting for £20 and under. There 
were 4,008,907 farms in the United States in the year 1880. 



284 POLITICAL ECONOMY. 

The actual number of acres taxed in 1880 in the small and 
sterile State of Massachusetts was 4,474,674 ; from which, 
if we deduct 100,000 acres for house-lots in city and village, 
th3 farm acreage remaining will he about 4,375,000, an aver- 
age of nearly 44,000 farms of 100 acres each. Now it is 
easj' to see, in general, what part of these lands, as also 
what part of these buildings, is capital : the factories and 
business premises of course are capital ; the lands and the 
buildings on them that are rented out are capital ; the farms 
cultivated by their owners or leased to tenants are capital ; 
while private houses occupied by their owners, and lands 
kept for mere beauty or convenience, are not capital. That 
portion of the land that is capital, then, must of course pos- 
sess all the characteristics of capital ; and, among these, is 
the liability to wear out. As value comes only gradually into 
land under the action of human efforts and desires, and as 
valuable land becomes capital only under the further action of 
these and of abstinence, so lands often cease to be capital 
and even to be valuable as these causes intermit their action 
in relation to them. There are whole tiers of farms in the 
writer's native town in New Hampshire, that were once 
valuable and capital in the hands of active owners and cul- 
tivators, which are now growing up to forest again, and are 
as nearly as possible valueless. This is a mere instance of 
facts, which may probably be exemplified in every country 
in the world ; and is such as ought to stop the mouths of 
those, who, like Mr. George and the Irish land-leaguers of 
1881, denounce private ownership in land as spoliation, and 
would confiscate rent either for the benefit of the whole com- 
munity or of the actual tillers of the soil. The truth is, the 
common sense of mankind seals such ownership, that is to 
say, grants a full title to the land to those who have subdued 
or improved it, and to their heirs or purchasers, except when 
tribal or political considerations override this by some neces- 
sity that then and there seems more imperative. "Since the 
beginning of documentary history, the Germans have had 



LAND. 285 

Individual property in laud and a settled law of succession," 
Bays Dr. Inama-Sternegg of Prague. The right to own and 
to enjoy carries along with it the right to sell aud to abandon : 
and even the abandonment of lands proves that they become 
valuable and become capital, and then sometimes cease to be 
both, in the manner already indicated. Under certain well- 
known conditions, value disappears, and capital wears out. 

8. If the bulk of land be capital, as it is, then we might 
expect beforehand to find a law of diminishing return from 
laud, agricultural labor and skill remaining the same ; be- 
cause all capital is tools, and tools are always wearing out. 
Increase of labor in connection with any form of capital 
unimproved by new inventions and uninvigorated by fresh 
skill, though it may indeed increase the aggregate return, 
cannot, for the reason just given, secure an increase propor- 
tioned to the increase of the labor. Tilled land, therefore, 
is subject to the law of a diminishing return of w ' produce," 
by which we mean all the fruits of the earth cultivated for 
the sake of their sale. This is the fundamental proposition 
on which Ricardo, and the English writers generally, lay such 
stress, and on which they found their law of Rent, and the 
necessity of restraints on Population ; while Carey and Bas- 
tiat, impliedly if not expressby, den}' the proposition, and 
of course the inferences deduced from it. But the proposi- 
tion cannot be logically denied, because it can be shown to 
be a law of Nature, and to have played a very important 
part in the occupation and culture of successive portions of 
the earth's surface. The English writers have uot indeed 
taken land to be capital, and have proved the law of dimin- 
ishing return in another way from ours, and hence have 
not set the propositions of land in their best and most ulti- 
mate relations. Their method of proving the law is short 
and conclusive: — If by doubling the labor on a pi© 
land, double 1 the produce could be secured, and by quadru- 
pling it, quadruple, and so on, there would be no reason 
why any man should ever cultivate more than a square acre, 



286 POLITICAL ECONOMY. 

or even a square rod. He has a strong motive to confine 
his culture to a small space, just so long as the amount of 
produce is in the ratio of the labor expended, because there 
is less locomotion of tools and fertilizers and crops. The 
fact that he extends his culture from one acre to another, 
and then to distant acres, notwithstanding the inconven- 
iences aud expense of transportation, is an irrefragable proof 
of the proposition in question. Increase of agricultural 
labor and expenditure on a given space of land will secure 
a larger amount of produce, but as a general law, the in- 
creased amount will not be proportioned to the increased 
expenditure. If it were thus proportioned, if the law of 
diminishing return did not exist, then, for purposes of agri- 
cultural production, a square acre is as good as a continent. 

It is through this law of diminishing return, that the 
Creator has secured the gradual occupation, by men, of almost 
the whole earth. There is a strong tendency to leave the 
old acres to advance upon new, the old countries to emigrate 
to new, whenever the returns begin to bear a more unfavora- 
ble ratio to the labor bestowed. The farmer will advance 
from the first to the second acre as soon as he thinks that 
more produce can be obtained from it by a given amount 
of labor than can be got by a like expenditure of additional 
labor upon the first acre, allowance being made for the 
increased inconvenience ; and so, cultivation has gradually 
extended itself, and men have become dispersed over the 
whole earth. Other principles leading to dispersion have 
undoubtedly co-operated, but this is the fundamental one, 
operative at all times, changing the course of population, 
and consequently of empire. 

Mr. Carey tried to break down the law of diminishing 
returns, which he thought was dependent on an alleged order 
of occupation, namely, that the best soils are entered upon 
first, and afterwards recourse is had to the poorer soils, by 
attempting to prove the reverse order of occupation, namely, 
that cultivation has always been begun upon the poorer 



LA ND. * 287 

soils, and tlnit afterwards Hie river bottoms and strong lands 
have been drained and cleared and tilled. This discussion 
of the order of the occupation of lands, however interesting 
in itself, is irrelevant so far as the law of diminishing returns 
is concerned, because that law is nowise dependent on the 
order in which soils of different productive power are entered 
upon in cultivation ; and consequently, Mr. Care} 7 put upon 
this order of occupation an estimation altogether dispropor- 
tioned to its importance. Whenever men have entered upon 
new countries, they have undoubtedly selected those lands 
first which seemed to them most eligible, reference being 
had of course to their present meaus of subduing them ; 
and whether these lands proved ultimately to be better or 
worse than other parcels which they might have chosen, is a 
point, which, however determined, has no effect to disturb 
the fundamental proposition in hand. 

Nor is there any thing to disturb this proposition in the 
enormously increased produce of late years in the United 
States, and in other countries similarly situated. For in- 
stance, in the cottou year ending Sept. 1, 1881, the United 
States produced G, 589, 329 bales of raw cotton, while in 
1850 and in 1870 respectively the crop was 2,409,093 aud 
3,011,990 bales; in the census year 1880, there was of 
wheat 459,479,505 bushels, while in 1870 there was only 
2*7.745,020 bushels ; aud of Indian com in 1880, there was 
1,751.801,535 bushels, while in 1870 there was but 7G0,- 
944,549 bushels. This great increase came for the most 
part from new acreage, and not from a larger produce on old 
fields. The United States has an immense area of fertile 
land, long stretches of which are feeling the plough for the 
Uist time year by year. 

9. All improvements in agriculture retard the operation of 
th? lata of diminishing returns. The recent introduction of 
the silo upon the long-used and wearing-out farms of New 
England promises to help restore the fertility of many of 
them. The discover}- of new and more available fertilizers, 



288 POLITICAL ECONOMY. 

tne invention of better agricultural implements, the light 
thrown by chemistry upon agriculture, the consequent adop- 
tion of better methods of culture and rotation of crops, the 
more perfect adaptation to the various soils of the kinds of 
produce sought to be .-aised from them, all these and similar 
improvements tend to increase the ratio of the produce to 
the labor, and disguise the law just established. The lands 
that are now under cultivation may be made, under more 
skilful modes of culture, to yield indefinitely more than at 
present, and the vast still uncultivated lands of the world 
may come to render an incalculable quantity of food to the 
world's population ; but yet, as improvements are naturally 
less continuous in this than in some other departments of 
production, as invention has less play, as there is less oppor- 
tunity for the division and co-operation of labor, as nothing 
can materially shorten the time during which the fruits of 
the earth must ripen, it is certain that possible improve- 
ments will never override the law of diminishing returns ; 
and, consequently, that the value of agricultural products 
tends to rise relatively to manufactured products generally. 
Labor, for a reason already given, and produce, for the rea- 
sons now given, have risen and tend steadily to rise, as 
estimated in general commodities. 

10. The rent of leased lands is the measure of the service 
which the owner of the land thereby reiiders to the actual cul- 
tivator of it. This proposition is extremely important. As 
land is capital, and as every form of capital may be loaned 
or rented, and thus become fruitful in the hands of another, 
as was shown in the preceding chapter, the rent of land does 
not differ essentially in its nature from the rent of buildings 
in cities, or from the interest of money. The year 1881 
was marked by animated discussions throughout the civilized 
world, and particularly throughout the English-speaking 
world, on the nature and rightfulness of landed rents, stimu- 
lated by the deep commotions of Ireland and by the de- 
bates in the British Parliament on the Irish Land Bill passed 



LAND. 289 

in that year. In those debates, the representatives of Irish 
land-owners held to their commercial right to take all the 
rent they could extort ; the representatives of the Irish rent- 
payers held to their right as cultivators and maintained to 
withhold rent in large part or altogether; and Mr. Glad- 
stone, as representative of the nation, while insisting on 
the right of the owners to certain rents, insisted equally on 
the right of the cultivators to certain important privileges 
in the soil. Our present proposition with its corollaries, 
although it was not used by Mr. Gladstone as it might well 
have been to smooth his pathway through the roughness of 
this legislation, yet justifies at one and the same time the 
discontent of the Irish rent-payer, the claim of the Irish 
land-owner to an assured rent, and the fundamental principle 
of the Irish Land Bill. That bill gives a certain modified 
ownership and control to the actual cultivators and main- 
tainers of the soil. That is right. 

The commonly accepted English principles of land are 
wholly against Mr. Gladstone in his concessions to the ten- 
ants in that bill, while the principles of land herewith enun- 
ciated justify those concessions completely. Valuable land 
becomes such in virtue of human labor expended in connec- 
tion with the desires of other men for land or its produce, 
and, unless human labor is further and constantly expended 
on or in connection with that laud, the value will certainly 
escape fro.^n it ; therefore, whoever has come into possession 
of that valuable land by purchase or inheritance, and fore- 
goes the use of it in favor of another, is morally and com- 
mercially entitled to the stipulated return for that use ; but 
also, if that other, aside from the current use which i- 
always a wearing-out process, contributes in any way to the 
continuance and increase of the fertility of the land, then 
and so far he gains rights in the laud and becomes a sort 
of joint owner of it, since what he has done in the way of 
maintenance and improvement is inextricably mingled with 
what the other owners have done, and is of the same nature 



290 POLITICAL ECONOMY. 

with that. Therefore, the modified ownership of certain 
tenants recognized in Gladstone's bill is in strict accordance 
with ultimate justice. It is also in strict accordance with 
right, that the legal owner should continue to receive a 
return in the shape of rent for all the fertility and oppor- 
i unity actually rented by him, and no more. The discon- 
tent of the Irish peasantry, accordingly, has largely come 
from an instinct or intelligence more unerring than the eco- 
nomics of the landowners, namely, that they are called on 
to pay rent for what they themselves have contributed in 
addition to the rent for what they have received. The true 
origin of value in land, and the only way in which value in 
land is kept up, seems to have penetrated deeper into the 
minds of Irish tenants than into the minds of many British 
statesmen. 

But Mr. Ricardo's wrong doctrine of rent is too famous 
and too firmly embedded in many men's minds for us to pass 
it by in this connection. The doctrine is for substance, this : 
there are some lands in every country whose produce just 
repays the expenses of cultivation, and consequently yields 
no margin for rent ; and the cost of production on these 
rentless and poorest lands under cultivation, will determine 
ihe price of the produce ; and as there can be but one price 
in the same market, the produce raised on more fertile lands 
will be sold for the same price, and this price, besides pay- 
ing the cost of production, will yield a rent rising higher 
according as the land is more fertile ; so that the rent paid 
on any land is always a measure of the excess of produc- 
tiveness of that land over the least productive land undei 
paying cultivation ; and therefore, an increased demand for 
food in consequence of increased population, and the higher 
price resulting, will force cultivation down upon still poorer 
soils, or else compel a higher culture for less remunerative 
returns on the old soils, according to the law of diminishing 
returns, which in either case will raise the rents on all the 
soils above that grade that just repa} T s the expenses of cul 



LAND. 291 

tivation ; so that it is the sole interest of landlords, as such, 
that population should be dense and food high, their interest 
being directly antagonistic to that of the other classes of the 
community. 

This ingenious and plausible doctrine is as full of falla- 
cies as an egg is full of meat. It grew up in a state of 
things in England now long since passed away, when that 
country was under infamous corn-laws passed to " protect " 
the land-owners by raising the price of food through virtual 
prohibitions on the importation of foreign food. So soon 
as the trade in corn became free in 1849, and it was no 
longer possible to crowd cultivation down upon unfit soils 
by means of prices artificially made dear for the people, the 
Eicardo law of rent lost most of its significance, and the 
simple truth remained, applicable to all products that have 
a market-rate, that the rate must be presupposed to be suffi- 
cient to meet the cost of that portion produced with the 
greatest difficulty, otherwise that portion would not have 
been produced at all. So far as lands are taken on shares, 
or on permanent leases, or so far as produce is exchanged 
directly against other commodities and sen-ices, Eicardo's 
law has no direct bearing. It falsely assumes too, that mere 
cost of production determines the value of produce, while 
we have learned that the desires of purchasers have quite as 
much to do with value as the efforts of producers. It falsely 
assumes also, that the market-rate of produce is a sort of 
invariable and predeterminable thing, whereas, although there 
is a strong tendency towards one price of similar goods of 
the same grade in the same market-town on any one day, 
within certain limits nothing is more changeable or indeter- 
minable beforehand than the market-rate of produce from 
week to week or year to year even in one country, to say 
nothing of the markets of the world. Worst of all, this 
law assumes, that there are "original and indestructible 
powers of the soil." and that "rent is that portion of the 
produce of the earth which is paid to the landlord for the 



292 POLITICAL ECONOMY. 

use " of these powers, and that the varying grades of soil 
become such and continue such without modification and 
reversal on the part of men ; whereas, the truth is, as we 
have fully seen, that there are no such " powers," and that 
rent is not consequently paid for their '' use." 

The following is believed to be the whole truth briefly 
expressed in regard to the rent of lands. That portion of 
utility in lands that is the free gift of Nature is mostly a 
common factor eliminated from value by the action of com- 
petition, as in the horses and strawberries, by which illustra- 
tion was made in the chapter on Value. When not thus 
eliminated, that part of the utility may raise the rent as well 
as the price, but the exception in either case is practically 
unimportant, in both cases is amenable to the law of services 
exchanged, and, the exception aside, the rent of lands is a 
simple recompense for the use of a productive instrument, 
made such by human efforts. The owner has become pro- 
prietor of all the results of the onerous exertions put forth 
upon that land, or in any connection with that land, and 
allows the lessee the use of these results. Because the 
owner practises abstinence in the lessee's behalf, rent is sub- 
stantially the same as profits ; and as gross profits include 
the wages of superintendence, so rent also partakes of the 
nature of wages, so far forth as the owner still takes an 
active supervision of his property. Whether tillable lands 
pay any rent at all, and the amount of rent that they pay, 
always depends, so far forth as commercial considerations 
control, on the general or average or expected price, that 
is to say, value, of Produce. It is not diversity of soilrs, 
nor the law of diminishing return, that causes rent, since 
these continue as before when rent ceases to be paid ; but 
it is the price of produce under demand and supply, that 
causes rent. If this price be high, as under the corn-laws, 
then rents tend to be high ; if low, as under free trade in 
food, then rents tend to be low. The boundless acres and 
fertility cf the western parts of the United States reduced iu 



LAND. 293 

the decade 1870-80 many rcntful lands in New England, and 
Old England too, to or near the rentless point. Of course, 
whatever makes lauds more desirable for cultivation, such 
as greater proximity to markets, higher degrees of fertility, 
a better state of improvements, will influence both the price 
and the rent of those lauds ; while the variations of demand 
and supply as determining the price of produce are the main 
things to watch in order to find out about the value of lands 
and their rent. 

11. The best tenure of lands is the fee simple in the hands 
of the actual cultivators. This is the old Teutonic holding ; 
but special circumstances in the British Islands have gradu- 
ally ehauged these small holdings cultivated by their owners 
into large estates, the parts of which are leased out at will 
or for a term of years to tenants or " farmers," as they are 
called, who, in turn, being small capitalists, as the laud- 
owners are large capitalists, furnish stock and hire laborers 
and thus become the actual cultivators, and even often sub- 
let parts of their own leased holdings to tenants of the next 
degree. The word " farmer" as used in the United States 
has a quite different meaning from the same word as used in 
Great Britain ; it means here a man cultivating his own 
fields with his own funds in his owu way, and it means 
there a man cultivating another's fields with his own funds 
in a wa} 7 and on terms made a matter of contract between 
the two ; and these two modes of culture are so distinct that 
they are not likely to lie alongside of each other in the same 
country to any great extent for a very long time. Since 
the great Revolution, France has had for the most part the 
small holding tilled by the owner's hands, instead of the 
great estates of the old regime; in this country the plough 
is guided almost exclusively by the man who owns the soil ; 
while in Britain the peasant proprietor has almost wholly 
disappeared. Each system has its advocates and argument-. 
The question at bottom is, whether capital in the form of 
tillable land is more effective when held in large masses and 



294 POLITICAL ECONOMY. 

loaned out to men with small capitals in another form, or 
when held in small masses and used as capital by the owners 
themselves. We hold that the latter is better for produc- 
tion than the former, because when one owns the land h3 
tills, he takes a greater interest in it, it is his own, he has a 
constant motive to improve it, to make the production from 
it as great as possible, since all it produces is his own. If 
men work from motives, and if the energy and persistence 
of the work be proportioned to the constancy and press of 
the motives, then will ownership most certainly make the 
aggregate of produce greater than any other tenure of land. 
Moreover, ownership improves the moral character of the cul- 
tivators, because it tends to make them industrious, thrifty, 
independent, hopeful of the future, anxious to give their chil- 
dren better privileges, as well as better lands, than they 
themselves had. It would seem as if the masses of men are 
educated and developed by nothing so much, at least by noth- 
ing more, as and than by the ownership of land, wherever such 
tenure is possible and easy to the masses. The testimony is 
abundant, that the peasant proprietor is a happier and more 
virtuous, as well as- a more industrious and productive man, 
than the mere tenant and the farm-laborer ; and there is 
much testimony, though it is perhaps less conclusive, that 
leased lands are inferior in point of improvements and pro- 
duction to the same lands when they were cultivated by their 
owners, and to contiguous or at least similar lands still so 
cultivated. The zeal of an absolute ownership limited in 
extent has been observed to lead to remarkable results as 
well in character as in lands, transforming after a while the 
poorest into excellent lands, and thriftless laborers into fru- 
gal and enterprising proprietors. This line of argument is 
strengthened by several features of the Irish Land Bill of 
1881, and by a speech of Gladstone's at the rent-day dinner 
at Hawarden in 1882, to the effect, that it was necessary 
both that legal security be given for the unexhausted im- 
provements made by the tenants, and also that provision be 



LAND. 295 

made whereby tenants might cheaply and quickly be made 
Uind-oumers. 

19. It is a point closely allied to the last, that a general 
division of lands into farms approximately equal and only 
model ately large is most favorable to the largest aggregate 
production. Wherever there are no legal obstacles like pri- 
mogeniture and entails, and owners can consequently sell a 
part or all of their lands whenever it is their pecuniary inter- 
est to do so, the lands naturally fall into those hands which 
are most capable of using them productively, because such 
persons can afford to pay more for them than anybody else ; 
and the division that follows this impulse of self-interest 
and this freedom of exchange is likely to be into farms 
about equal in extent and but moderately large. Such a 
division has taken place of its own accord in New England, 
in the Middle States, and for the most part at the Wet t 
also; while at the South, the institution of slavery led U 
the system of large plantations and few land-owners, whic» 
system is now under the auspices of freedom graduall} 
giving way to the better system of small farms and numer- 
ous proprietors. Aristotle quotes from u the African," 
probably some Carthaginian writer on agriculture, the say- 
ing, " the best mauure for the land is the foot of the owner." 
This homely word, which has been often attributed to Dr. 
Franklin, and which is as true as if its origin did not date 
back some centuries before Christ, is based on the ground, 
that personal supervision, to be most effective, must be lim- 
ited in its sphere, and that the best agricultural knowledge 
and skill becomes weak when it attempts to exhibit itself on 
too broad a surface. Because a man can cultivate 100 
acres better than any of his neighbors, it does not prove 
that he will cultivate oO acres additional to them better than 
a neighbor of inferior skill, who is the owner of those 50, 
and no more. When the freeholds are small and nearly 
equal, a wide competition among the farmers comes naturally 
into play, success is seen to depend upon personal efforts of 



296 POLITICAL ECONOMY. 

intelligence and will, and interest and hope become the mo- 
tives to the most productive cultivation. There is a high 
pleasure in possession and in self-guided exertion, and an 
impulse is broadly felt over the whole region to get as much 
as possible out of the land and at the same time to keep 
good and ever improve its condition. To protect and ad 
vance his own interests, to attend upon the seasons, to waft n 
and t\ ait, to foresee and plan and labor, all this educates the 
farmer and gives him energy and independence ; and wher- 
ever there is a broad basis of such independent yeomanry to 
lean back upon when heavy taxes are to be raised and strong 
blows of battle are to be struck, the national safety and posi- 
tion are assured. 

France and England are instructive examples in this whole 
matter. In France, since the abolition of all entails and 
primogenital rights by the revolution of 1789, and under the 
action of the law requiring the equal partition of a man's 
landed estate among his children, the lands have become 
subdivided into small parcels, averaging about fourteen acres 
to each owner. Nearly one-fourth of the entire population 
of France are proprietors of land either in town or country. 
There are very nearly 123,000,000 of acres owned by indi- 
viduals. In 1866 these lands were officially estimated to be 
worth $31,000,000,000, and the annual net income from them 
$937,500,000. In 1875 the yield of French wine rose to 
84,<000,000 hectolitres, or over 2,000,000,000 gallons, though 
this was by much the largest } T ield on record. In point of a 
pretty regular increase of agricultural products throughout 
this century, with the exception of wine in these later 3?ears ; 
in point of an industrious, frugal, cheerful peasantry ; in 
point of a very general desire and ability to purchase land ; 
in point of showing that subdivision ceases so soon as the 
lands, if divided further, would be less profitable in produc- 
tion ; in point of pauperism ; in point of national strength 
and weight, in spite of disasters in war, and in spite of a cen- 
tralized and repressive government ; in point of the easj 



LAND. 297 

introduction and maintenance of republic: n institutions , 
and in point of an ability in the peasantry to loan to govern- 
ment in an exigency enormous sums of money in the aggre- 
gate ; a long experience has shown that the practical work- 
ings of this subdivision of the land have been most happy. 

In England, on the other hand, the monster-farm system 
prevails. According to the Domesday Book of 1875, 710 
persons owned \ of the geographical area of England and 
Wales, the aggregate holdings of the 100 largest private 
owners were 3,852,000 acres, the Duke of Northumberland 
owned in one county 181,000 acres, the two old Universities 
held 235,550 acres in all parts of England and Wales, while 
the entire acreage is but 34,537,158 acres. The system of 
leased lands extends also over Scotland and Ireland. The 
late Earl of Leitrim, assassinated in 1878, owned 95,000 
acres in three Irish counties, and there were about 20 land- 
lords in Ireland who then held more laud than he. There 
are 20,815,400 acres of land in Ireland. The national results 
of this system, so far as we can trace them separately, have 
been about what we should expect them to be. It is hard to 
say just how much is due to bad laws of land, how much 
to irreducible differences of race and religion, and how much 
to political remnants of the feudal system ; but it is clear 
enough, that the first cause has had much to do with the 
patent fact, that while there are upper and middle, and lower 
and lowest, classes, a homogeneous British people arc not to 
be found. In what used to be justly called the " irretrieva- 
ble hclotism " of the laboring classes ; in an unmeasured in- 
equality of fortunes and comforts ; in an average of 1 ,100,0-13 
persons in the three kingdoms relieved by means of the poor- 
rate on a specified day of each year from 1849 to 1871, of 
whom on the average 207,890 were able-bodied adults ; in an 
annual poor-rate raised by taxation of $53,187,225 for the 
same 23 3'cars on an average, some of which, however, was 
expended for other purposes i-j in the lack, felt alike in war 
and peace, of a large class of sturdy yeomanry, the strength 



298 POLITICAL ECONOMY. 

of a State ; in the frequent recurrence of land troubles ol 
vast magnitude in Ireland ; and perhaps also in a consequent 
sinking of relative position, power, and influence, former 
times being held up with the present, as compared with 
France and the other first-class powers ; may doubtless be 
seen some of the special results of vicious land laws. No 
degree of merit in the other parts of the British system can 
ever comj ensate the want of just and broadly liberal laws 
of land. Still, the striking merits of other parts of that 
system are alleviating results even here. The commercial 
system is admirable beyond that of any other country in the 
world. The money system and the taxing system are rela- 
tively simple and excellent. Consequently, on the whole bal- 
ance of results, Britain is prosperous and powerful. Wages 
are constantly rising, and pauperism is constantly declining. 
At the close of 1881, John Bright declared, that the main 
lines of wages in the cotton mills of Lancashire had doubled 
in forty years ; and when it comes to the purchasing-power 
of these wages, with the single exception of food, Britain 
is the cheapest market in the wide world for the necessaries 
and comforts of life. 

We may condense the discussions of this chapter into the 
following propositions : — 

1 . The questions of Land test the powers of the economist 
to their utmost. 

2. A just generalization covers readily all the relevant 
cases. 

3. A distinction must be made between Land as a physical 
thing and Land as a valuable thing. 

4. Land is a Commodity made such by human efforts, and 
its sale, its produce, and its rent, come under the ordinary 
laws of value. 

5. Valuable land is a form of Capital, and as such is 
subject to the law of diminishing return. 

6. Private ownership in lands is i dictate of the deepest 
justice and of the longest experience 



LAND. 299 

7. Tlie rent of leased lands is but the return-service of the 
cultivator for the use of the capital of the land-owrier. 

8. It is not the law of diminishing returns, nor the differ- 
ences in fertility that cause rent, but the price of produce 
under demand and supply. 

9. Superior soils pay a rent because the price of produce 
justifies the cultivation of inferior soils. 

10. The corn-laws of England were abominable because 
they raised prices, and therefore rents. 

11. The price of produce as of every thing else is deter- 
mined by the demand for it and the supply of it. 

12. As lands are capital, so rents are profits. 

13. Fee-simple in the hands of actual cultivators is the best 
tenure; long leases are better than short ones; and reasonable 
tenant-rights should be guarded by law. 



300 POLITICAL ECONOMY. 



CHAPTER VIII. 

COST OF PRODUCTION. 

There are only three categories of valuable things : first, 
commodities ; second, services ; and third, credits. Credits 
will shortly be considered at length in the chapter under that 
title ; services have already been specially treated in the chap- 
ter on " Labor ; " and the general principles of value already 
laid down cover alike all three of the-categories. But there 
are certain subordinate principles of our science, which are 
applicable to commodities alone. Land, so far as it is ever 
subject to sale, is, as we have just seen, a commodity ; its 
products are commodities; the hired laborers who till it, ren- 
der services; and the leases, under which the tenants culti- 
vate it in lieu of their landlords, are rights, or credits. These 
three things are intimately associated of course, inasmuch 
as they are all salable, and thus all come under one genus. 
Still, in the present chapter we must bring forward some 
supplementary matters relating to value, which concern com- 
modities alone, and which could not properly be discussed 
until the subjects of labor, capital, and land, were, at least 
in their ground principles, understood. "We are now in posi- 
tion to be able to analyze the Cost of Production of those 
material things exposed for sale, which are technically called 
Commodities. 

While we were inquiring, in the chapter on value, whether 
such a thing as a measure of value were possible, it was 
remarked that some political economists have thought that 
the cost of production of any commodity is the most accu- 
rate measure of its general purchasing-power ; and it might 



COST OF PRODUCTION. 301 

have been added, that these writers consider ttat there is 
such a thing as natural value distinct from market value, 
that natural value is the cost of production, and that market 
value oscillates perpetually around that, and tends constantly 
to return to it. How far these views are just, how far cost 
of production constitutes a law of value within the all-com- 
prehending law of demand and supply, is the point to which 
attention is now directed.. 

It is noticeable, that while almost all people put forth 
onerous efforts to satisfy the present and immediately pro- 
spective wants of other people, in view of receiving back 
from them corresponding efforts to satisfy their own present 
and immediately prospective wants, there are some people, 
who have both foresight and capital, who set to work to 
make preparations in reference to services which they expect 
to render some time in the future ; and it is evident that this 
matter of the cost of production has an especial bearing upon 
those classes of production in which permanent investments 
arc made, looking to future rather than to present exchanges. 
It becomes necessary to attend to cost of production simply 
because cost of production is sometimes an exact measure 
of one of the elements out of which value springs, namely, 
the element of effort. When a surgeon, for example, charges 
fifty dollars for cutting off a man's leg, cost of production is 
an impertinent phrase in relation to such a service, and is no 
measure of the effort ; but when a capitalist invests S-0,000 
in a cutlery establishment, hires all his labor, and at the end 
of the year has produced 5,000 knives, cost of production 
has a definite meaning as applied to each one of the knives, 
and is an accurate measure of the one element of effort, which 
goes, together with other elements, to determine its value. 
It is not true at all that cost of production alone determine? 
the value of the knife, or is a measure of the value of the 
knife, but it is true that, in this case, and in all cases in which 
a commodity is produced by a definite capital invested for a 
fixed time, and by labor wholly hired, or estimated as hired, 



302 POLITICAL ECONOMY. 

the cost of production is an exact measure of one of the 
four elements which go to determine value, namely, of one 
effort. 

Now let us suppose that when these knives are exposed 
for sale, no such return-services are offered for them as are 
held by the maker to be satisfactory. He may indeed, in order 
to avoid a still greater loss, sell his knives for less mcney 
than it has cost to manufacture them, but it is evident that 
he will not go forward at present in his enterprise of making 
knives. He will suspend operations, or withdraw from the 
business ; and his action in this respect will affect the supply 
of knives to lessen it ; and the next equalization of demand 
and supply will be likely to adjust a market value more favor- 
able to knife-makers. Or if, when the knives are exposed 
for sale, they meet with an exchange at very remunerative 
rates, our capitalist is now stimulated to increase his produc- 
tion, to put back his profits into his business, and perhaps 
to invest in it additional principal. His action in this respect 
will affect the supply of knives to increase it ; and the next 
equalization of demand and supply, or if not the next, some 
subsequent one, will be likely to adjust a new market value 
less favorable to knife-makers. Thus it is seen, that abso- 
lute cost of production influences value not directly, but 
remotely, through its influence on supply. To suppose and 
to eay that the cost of production of one commodity deter- 
mines its value in an exchange with another, is to perpetuate 
the old mistake of ignoring the second commodity, is to re- 
iterate the fallacy that value is an independent quality of 
one thing, in short, is to confuse the whole subject of value. 
When the writers referred to speak of the " natural value " 
of any commodity, they mean its absolute cost of produc- 
tion ; but, at this stage of our inquiry, it surely cannot be 
necessary to repeat the thought already so often expressed 
in substance, that an analysis of one component part falls 
far short of determining the resultant of four component 
parts. Professor Jevons puts this in his own strong way, 



COST OF PRODUCTION 303 

when he says : " The fact is, that labor once expended has 
no influence on the future value of any article ; it is gone 
and lost forever. In commerce, bygones are forever by- 
gones." In another place, the same writer lays down the 
maxim too broadly : ' ' The value of labor is determined by 
the value of the product, not the value of the product by 
that of labor." The exact truth is, the value of labor, as 
of evei - y thing else, is gauged by the Demand for it and the 
Supply of it. 

But while these general statements are just, there are 
other points of view in which the cost of production of com- 
modities comes to be practically important, and thus worthy 
of a careful analysis. From its obvious relations to Supply 
already exemplified, the cost of any particular commodities 
is constantly, though indirectly, influencing the value of 
other similar commodities afterwards to be put upon the 
market. Also, in respect to permanent investments looking 
solely to future production, cost becomes very important, 
because, while it can never determine the purchasing-power 
of the product, it is alwa}'s one element in determining it ; 
and especially because the improvements which are all the 
time being introduced into the mechanical and other pro- 
cesses of such production, which improvements always tend 
to lessen the cost of the product, have the effect to lessen 
the value of all permanent investments, unless similar im- 
provements be inaugurated in connection with them. The 
march of improvement is so constant, that old machinery 
and old processes are rapidly depreciated ; and a calculated 
cost of future production in one establishment is almost 
sure to be disturbed by new labor-saving inventions in other 
sim.lar establishments, which will be able in consequence to 
offer the commodity at a lower rate than the rate estimated ; 
in which case the value of the product will not conform to 
the estimated or even actual cost of production in that 
establishment, but will pitilessly fall to the point at which 
similar commodities are offered by the more fortunate pro- 



304 POLITICAL ECONOMY. 

duoers. For these reasons we must inquire carefully after 
the elements of cost of production. 

Mill (hi. 4) says correctly that these elements are only 
two, namely, Cost of Labor, and Cost of Capital. These 
two are the only onerous elements that enter into the produc- 
tion of commodities. Assisting the processes are, indeed, 
the natural powers of land, water, wind, steam, electricity, 
and so on, but as these are always gratuitous, they form no 
element of cost. Labor must have its wages, and capital 
j must have its profits. Besides current profits, capital must 
also lay by a sinking-fund to replace the original capital 
when worn out. It will be in vain to search for any other 
ingredient of cost than these two. In some of the best of 
our New England mills and foundries a careful record is 
kept of the cost of materials and labor going into any 
single machine, or other product, which they have contracted 
to deliver ; no account being taken in this record of the 
wear and tear of buildings and tools, and other incidental 
costs of capital. 

1. Let us examine first the cost of labor. By this is 
meant, of course, the cost to the employer, and not to the 
laborer himself, in reference to whom the phrase would have 
no meaning. Now, if we make an exhaustive analysis of 
the cost of labor to the employer, we shall find that there 
are only three things that go to make up its cost. First, the 
efficiency of the laborer ; second, the rate of nominal wages 
paid ; and third, the cost to the employer of that in which 
the wages are paid. Let us see how each of these acts, and 
how all act together, (a) There are great differences in 
the effL iency of workers even on the same farm or in the 
same mill within the same country, and still greater differ- 
ences of efficiency when workers in different countries are 
compared ; consequently, if an employer hire two men to 
work for him at the same rate of wages, and if one be 
twice as efficient a laborer as the other, then the cost of the 
labor of the first to the employer is only one half the coat 



COST OF PRODUCTION. 305 

of the labor of the second. What the employer wants is to 
get things done; and therefore, a high rate of wages does 
not import a high cost of labor whenever the labor is very 
efficient. As a rule, the cost of labor in reference to a 
given product is the least in those countries in which the 
rates of wages arc the highest ; because, it is found, that a 
hiffh efficiency of labor accompanies both as a cause and an 
effect high rates of wages. A vast mass of current falla- 
cies are disposed of in a moment by this truth seen in its 
grounds. The United States show the highest rates of 
wages in the world, and at the same time show the lowest 
costs of labor, because as a rule the laborers are more effi- 
cient than elsewhere. England has the highest rates of 
wages and the lowest costs of labor in Europe for the same 
reason, (b) There are striking differences in the rates of 
nominal wages paid for a day's work in different parts of 
the same country, and especially in different countries. If 
there be no difference in the efficiency of the laborers as 
between Massachusetts and Georgia, or as between old Eng- 
land and New England, and no difference in the cost of that 
in which the labor is paid, then the differing rates affect 
at once the relative costs of labor. If a Georgia mill-owner 
can get just as efficient a laborer for one dollar a day as the 
Massachusetts owner must pay two dollars for, the third 
element being common, then, so far forth, the cost of labor 
in Massachusetts is double that in Georgia. So as between 
the United States and England, or Germany and France. 
It the rate of wages at any point rises or falls, efficiency 
of labor and cost of pay remaining the same, then of course 
eo::t of labor rises or falls there. But while rates of wages 
vaiy greatly, the costs of labor are nearly uniform the world 
over; because, the differences in rates come from differences 
in efficiency and in 1he cost of the money or other product 
in which wages are paid. "In India, although the pay 
of daily labor ranges from 4^ to GcZ. a day, mile for mile 
the cost of railway work is about the same as in England." 



806 POLITICAL ECONOMY. 

(c) If that commodity, whether money or other, m which 
wages are paid, varies in cost to the capitalist, then the cost 
of labor compensated by that commodity, efficiency of labor- 
ers and nominal rate of pay remaining the same, will of 
course be varied thereby. We shall learn in the next chapter 
that the value of money is by no means invariable even iu 
one country, as we have already learned the variable nature 
of all other values ; and, accordingly, the third element in a 
cost of labor is the cost of that in which the labor is paid. 
Assuming, as we may, that wages are paid in money, any 
country that has for any reason a more abundant money 
than another, may well pay higher rates of nominal wages 
without making its costs of labor higher than in that. In 
other words, any country that has its current prices of com- 
modities higher than another, may pay higher nominal wages 
without having a higher cost of labor. . The United States, 
for example, has usually had a very abundant money (not 
always of the best kind) , which has tended to make high the 
current prices of commodities, and this has enabled capital- 
ists to pay high nominal rates of wages, while their cost of 
labor was not enhanced at all by the extra rate. 

This analysis of the cost of labor throws a clear light 
upon several otherwise dark points : it explains, why the 
employer is quite willing to pay liberal wages to his efficient 
workmen, and rates still more liberal when mone}^ becomes 
inflated ; why countries with very low rater* of wages, as 
India, have no advantage in international trade over coun- 
tries with high rates of wages, as England ; why it is the 
poorest kind of logic to jump to the conclusion, that, be- 
cause rates of wages in Germany are about one-half those 
in England, therefore Germany ought to undersell England 
ia the markets of the world ; wiry, when De Quincey says, 
that Profits are the leavings of Wages, he must mean by 
"wages" the cost of labor; why the common confusion 
in the minds of men between rates of wages and costs of 
labor leads to false conclusions through errors of reasoning ; 



COST OF PRODUCTION. 307 

why the capitalist as such has no interest in low money 
wages, but only in a low cost of labor, which is entirely 
consistent with high money wages ; why a rise in money 
wages (money remaining as before) will not lessen profits 
any, if there be an accompanying increased efficiency of 
labor, as there is apt to be in that case ; and finally why 
there is no real antagonism but rather a real harmony of in- 
terests between employers and laborers. Employers as such 
are interested in having the costs of labor low, and so are 
countries engaged in foreign trade, but neither have the least 
interest in low rates of wages as such. So far of cost of labor. 
2. The second element in the Cost of Production is the 
Cost of Capital ; and this too may be analyzed into three 
variables, no one of which, any more than the three varia- 
bles in the cost of labor, can be safely neglected in the 
reckoning that has for its end a prospective Cost of Produc- 
tion. These are, first, the current rate per centum; second, 
the time for which the capital is advanced; and third, the 
liability of that form of capital to slow or rapid wearing-out. 
(a) If we suppose that the rate at Amsterdam be 3 and 
that at New York 7, that the cost of labor be equal in the 
two cities, that the time of advance be one year, and that 
there be no liability of the capital to wear out ; then a com- 
modity made at Amsterdam with an outlay of 8100 can be 
sold for $103, while a similar commodity made at New York 
with the same outlay cannot be sold for less than $107. 
All other things being equal, a low rate per centum of capi- 
tal in any country gives that country an advantage in selling 
n given commodity for money in the markets of the world, 
because its cost of production is less, (b) Let the same 
suppositions be continued, except that the time of advance 
at New York be extended to 4 years. Then the commodi- 
ty may be sold at Amsterdam, as before, at $103, but the 
corresponding commodity at New York for not less than 
|131, so far as mere cost of production determines the 
prices. This point is well shown up also in the case of 



808 POLITICAL ECONOMY. 

wine, which to reach its perfection requires to be kept a 
number of years : if it be a genuine article, and ripe, its 
cost is much enhanced by its delay in reaching the market. 
If the period of advance be long, and the rate high at the 
same time, the cost of capital from the two causes combined 
multiplies the cost of the product ; and only countries in 
which the rates are low can successfully engage in enter- 
prises requiring a large capital to be invested for long 
periods before returns are realized. One million of Dutch 
capital at 3 °f a year, expecting to realize returns only 
after 20 years, may be remunerated by products selling for 
$1,806,111; but American capital under like circumstances, 
except that the rate is 7, must have a return of $3,809,685. 
(c) All forms of capital wear out, but some forms much 
faster than others, and this makes a difference in the sink- 
ing-funds reserved from gross profits in order to replace the 
principal. This difference affects the cost of capital, and 
thus the cost of production, and thus indirectly the value of 
the product. Suppose there are two commodities A and B 
produced in two establishments, in each of which is invested 
a capital of $11,000, in one of which is a machine costing 
$1,000, which is wholly worn out by one year's use, and in 
the other a machine costing the same sum, which will last, 
however, for ten years. Let the rate per cent be ten, and 
the time consumed in completing the products be one year. 
There is a difference in the cost of capital in the two estab- 
lishments, and this difference indirectly but immediately 
appears in the value of the respective products. To A must 
be charged not only $1,100, the interest on the capital at the 
current rate, but also another $1,000, wherewith to replace 
the machine already worn out by the year's production. A 
cannot be sold without loss for less than $2,100. B, how- 
ever, will cost less. To it must be charged, as before, $1,100, 
current rate of profit on the capital invested, and only $100 
to replace after ten years' use the machine. B, therefore, can 
permanently sell without loss for $1,200. 



COST OF PRODUCTION. 309 

Some conclusions worthy of notice follow from these analy- 
ses. First, since cost of production is made up only of cost 
of labor and cost of capital, if the cost of labor be for any 
reason enhanced, nothing can prevent this higher cost from 
taking effect and exhibiting itself in lower profits. Second, 
■rates of money-wages, or any rise or fall of them, provided 
they arc uniform, or uniformly rise and fall, in those depart- 
ments of production whose commodities exchange with each 
other, have no effect at all upon value, since they are common 
factors in two costs of production, and like all common fac- 
tors, cancel each other ; but any inequality of money-wages 
in these departments that affects the cost of labor, will have 
an indirect but controlling influence on the value of the com- 
modities. Third, the same principle holds in rates of profits. 
So far as the rates are common to all branches of production, 
the capital advanced for the same period, with a similar risk 
of deterioration or loss, and so far as any one or all of these 
advance or recede uniformly and together, they do not affect 
the value of any of the commodities produced. But inequal- 
ity in any one of these points, varies the relative cost of 
capital, and consequently, the cost of production, and con- 
sequently the value of the product. Fourth, though high 
rates of profit, all other things being equal, increase the cost 
of capital and so of production, it is a strange perversion of 
logic to conclude that countries with high rates of profit are 
at some great disadvantage in international trade as compared 
with countries with lower rates. The former are indeed at a 
disadvantage in trying to undersell the latter in the markets 
of the world, when each offers the same commodity against 
money; but their current high rates of profit show the folly 
of trying a trade like that, since they must have excellent 
domestic and foreign markets for other things, else they 
could not realize such profits on all their capital invested ! 

Just here there is opened up to us a clear view of the 
influence of machinery upon profits and wages, and conse- 
quently upon values. So far as machinery brings into play, 



310 POLITICAL ECONOMY. 

as it always does, a gratuitous natural force, it is outside the 
pale of value ; but since the machinery itself is one important 
form of value, on which rates per centum must be paid, the 
more machinery employed relatively to labor in the produc- 
tion of any given commodities, the more do profits enter into 
their cost of production, and the more powerfully do changes 
in the rate, the time of advance, and the risk of wear-out, 
tell upon the value of those commodities as estimated in other 
commodities. Or, to say the same thing in other words, 
the more, or the more durable the machinery empkrved in the 
production of any commodity, the larger becomes the element 
of profit in a price now absolutely reduced ; on a rise or fall 
of the rate, therefore, the value of a commodity made by 
more or more durable machinery will tend to rise or fall 
relatively to other commodities. 

The influence of machinery upon wages cannot be stated 
with quite the same precision of terms as the effect of it 
upon profits. Formerly the prejudice was almost universal, 
and is still wide-spread in many parts of the world, that the 
general introduction of labor-saving appliances does an injury 
to the laborers by taking away their work. So strongly has 
this been felt by the laborers, that in England, and especially 
in Ireland, mobs and riots have usually accompanied the in- 
troduction of machinery into those departments of produc- 
tion in which hand- work had previously prevailed. If vjork 
were what laborers really wanted, the prejudice in question 
would cease to be such, and become a sound opinion ; since 
the only object and result of introducing machineiy is to 
lessen work, at least with reference to a given product ; and 
the laborers, to be consistent, should not stop with opposing 
new inventions, but should destroy all forms of existing 
capital, that there might be work a plenty for simple human 
hands. What the laborers really want, however, is not work, 
but wages, or rather, those commodities for which their wages 
are expended ; and the question is, whether labor-saving 
processes tend to lessen, not work, but work's remuneration. 



COST OF PRODUCTION. 311 

The general appeal can be made to experience with all safety. 
As a matter of fact and experience, it has not been found 
true that the introduction of improved processes, the substi- 
tution of Nature's forces for human muscle, has deteriorated 
the condition of laborers in those departments into which the 
inventions have been brought, or the condition of laboreis 
gene rail}-. Exactly the reverse has usually taken place ; and 
wages are apt to be highest rather than lowest in connection 
with the most and the most durable machinery, and higher 
rather than lower, after the introduction of more and better 
machinery- Operatives in manufactories, for instance, are, 
as a rule, better paid than farm laborers ; and better paid in 
the first class than in the inferior establishments. Teamsters, 
in this country at least, are as well to do as before the con- 
struction of railroads. So of spinners, weavers, and arti- 
sans of every name. In explanation of these general facts, 
it may be noticed, (1) that labor is always required in the 
construction and repairs of all kinds of labor-saving appli- 
ances, and so far forth, a new market for labor is opened 
up in place of any loss of market possibly resulting from 
their introduction ; (2) these forms of capital always tend 
to cheapen the products which they help to create, and such 
products because they are cheap find a wider circle of con- 
sumers, and more must be produced to supply a now broader 
market, and so far forth the demand for labor may be stronger 
than it was before ; (3) these improvements cheapen also 
the commodities consumed by the laborers themselves, and 
therefore a given rate of wages now secures for them a higher 
grade of comforts. Combining these observations with the 
law of distribution already pointed out, and the conclusion 
is fairly established that the effect of machinery is, and \,.u 
be, rather favorable than otherwise to the laboring classes. 

Now, as a result of this entire discussion, attention must 
be called to a generalization, which has been more or less 
fully noticed by several writers, and with the presentation 
of which, this branch of the subject will be concluded. Since. 



812 POLITICAL ECONOMY. 

by the aid of the different forms of capital, and such a divis- 
ion of labor as that every part of it is made most efficient, 
the cost of production of most kinds of manufactured articles 
tends to decline as compared with the cost of production of 
food and raw materials, in whose production these advan- 
tages are less perfectly attainable, there is a constant tend- 
ency towards approximation in the value, and, if money 
remain unchanged, in the price, of raw materials and of 
finished products ; and in the degree of this approximation 
will be found a gauge of the success with which gratuitous 
natural forces and improved facilities of art have been made 
available in production. This single statement, clearly per- 
ceived in its grounds, grasps and holds the principal results 
of our discussions thus far. Examples of the principle offer 
themselves on every hand. Let us look at cotton cloth. At 
the opening of this century, the average price of raw cotton 
was just about twenty cents a pound ; at the middle of the 
century, and onwards, the average price was just about ten 
cents a pound. At the first period, although accurate tables 
are wanting, the average price of cotton cloth could not have 
been less than sixty cents a yard; at 1he second period, it 
could hardly have been more than ten cents a yard. The 
absolute price of raw cotton diminished in the interval in 
the ratio of 2 to 1 ; while the absolute price of cotton cloth 
diminished in the interval in the ratio of G to 1 . Relatively 
to a yard of finished cloth, the raw material greatly rose in 
value, since at the first it took three pounds to buy a yard, 
and at the last but one pound. There was a marked approx- 
imation all the while of the price of the finished product 
towards the price of the raw material ; in other words, less 
and less difference of price was due to the cost of manufac- 
ture, which lessening cost marks the ever- increasing efficiency 
in the production of commodities of the gratuitous powers of 
Nature applied through machinery. According to Dr. Ure, 
the introduction of machinery into the manufacture of lace, 
lessened the cost of that product in the ratio of 50 to 1 ; and 



COST OF PRODUCTION. 313 

thereby, and to that degree, approximated the pi ice of a 
pound of such lace towards the price of a pound of (he 
cotton from which it was made. Food, raw materials, and 
labor, and the last more than the other two, tend steadily to 
advance in their power to command, that is, to bin - , most 
kinds of finished products ; and therefore, the millions who 
labor with their hands, and the other millions who own the 
soil aud till it, have already advanced, and will still more 
advance, in a scale of comforts, with the advancing centuries. 
We may now give a summary of the present chapter as 
follows : — 

1 . There is only one kind of Value cognizable in Political 
Economy. 

2. Cost of Production is the measure of one effort in one 
class of exchanges, and therefore influences Value indirectly 
by its action on Supply. 

3. Cost of Production is made up of two elements only, 
namely, Cost of Labor and Cost of Capital. 

4. Cost of Labor is easily analyzed into three variables, in 
weighing which severed current fallacies are exposed. 

5. Employers as such are interested in loio costs of labor, 
which are entirely consistent with, and often accompany, high 
rates of tuages. 

6. Cost oj Capital is also analyzable into three variables, 
no one of which can be safely neglected either in the processes 
of reasoning ir of practical production. 

7. Profits are the leavings of costs of labor. 

8. The use of more and better and more durable machinery 
is equally favorable to both wages and profits. 

9. A given amount of raw material, of food, and of labor, 
tends to command, that is, to buy, more and more of the Jin' 
ished product. 



314 POLITICAL ECONOMY. 



CHAPTER IX. 



MONEY. 



"While Providential arrangemements in the physical struc* 
t lire of the earth and in the moral structure of society fur- 
nish the occasions and the limitations of exchanges, the 
desires and efforts and estimates of men pla}^ the chief part 
upon this great field. Nature and men co-operate in the 
determination of every case of value whatsoever ; but a 
distinction may be drawn with advantage which really divides 
economical laws into two classes. The providential ele- 
ments in economics, both physical and social, are relatively 
fixed ; and so are those principles of human nature related 
to exchanges which may be said to be universal in their char- 
acter, — such, for instance, as the preference to receive a 
larger rather than a less return, and to render a smaller 
rather than a greater effort ; while there are other principles 
of human nature related to exchanges much more variable 
in their character, such, for instance, as a nation's choice of 
the kind of money it will use, jor the kind of taxation it will 
impose. It follows clearly from this, that some economical 
laws must be more general than others, owing to a less vari- 
ation in the human impulses concerned in them : it follows, 
for example, that the law of landed rents, or the law of the 
approach of the price of raw materials to that of the fin- 
ished produces, is more universal in its terms than most of 
the propositions of Money and Taxation can be. 

Though it seems like a paradox, it is yet strictly true, that 
those parts of Political Economy in which the human ele- 
ments of variable choice predominate over the relatively 



MOXET. 315 

fixed laws of nature and of mind, are just the parts hardest 
for men to grasp and hold. We naturally think, and it is 
true, that difficulty and mystery are found in those depart- 
ments in which an infinite mind has been at work upon an 
infinite plan, and that there is no such profundity in the 
works of men. But at the same time, even those natural 
laws, like gravitation, which are clear in themselves, if they 
be such as the choices of men have to do with, such as may 
be modified and in a certain sense controlled by human 
actions, become from that very circumstance liable to diffi- 
culty and even to some mystery. All the truths of Money 
belong to this class. Still, while the propositions become 
less general on that account, and some difficulties are found 
here and there, there is no use at all in saying that money is 
such an elusive agent that nobody can understand it. That 
is the language of indolence. Money is wholly a matter 
of man's device, though it comes into contact with some- 
thing greater and more fixed than itself ; it was invented, 
just as an)' other instrument is invented, to accomplish a 
certain purpose ; and it would be strange indeed if men by 
taking pains could not comprehend what men themselves 
have devised. We hope, accordingly, in the following para- 
graphs to clear up the whole subject of Money completely. 
We will try to go so carefully and surely into this topic, that 
even "the wayfaring men shall not err therein." In this 
case, we will not begin with definitions and justify them 
afterwards, but will come up to them step by step, and, as 
it were, justify them beforehand. 

1 . Exchanges may go forward to a certain extent, — may 
begin and become profits ble, without the use of any money 
at all. Men at first exchanged services directly for each 
other, without the intervention of any medium. This form 
of trade is called Barter. Hiram, king of Tyre, furnished 
to Solomon a certain quantity of cedars from Lebanon, and 
Solomon, in return, furnished the Tyrians a certain quantity 
of wheat and oil. This may serve as an instance of barter, 



316 POLITICAL ECONOMY. 

although money had been in current use long previously to 
that transaction, as is seen in the purchase by Abrahum 
of the cave and field of Machpelah, for which he weighed 
out four hundred shekels of silver, current money with the 
merchant. It is obvious, however, that while barter is a 
great deal better than no exchanges at all, there are inherent 
difficulties in that form of exchange. Under pure barter, 
exchanges are pretty much limited to those parties each of 
whom is iu position to render to the other such services, and 
in such quantities, as the other stands in direct and immedi- 
ate need of ; it is not enough, under these conditions, that 
a man should have a service to sell, but also he must find a 
man who wants that specific service, and more than this, 
a man who not only wants that specific service, but also has 
a service to render in return, such as the first man wants. 
If A has wheat which he wishes to exchange for a coat, he 
must find a party who wants wheat, and who also is in posi- 
tion to render a coat in exchange for it, and moreover who 
wants just as much wheat as will pay for a coat, no more 
and no less ; if he wants more, he may have nothing to ren- 
der in exchange for the excess which A is willing to accept ; 
if less, A may have nothing which the other wants, besides 
wheat with which to help pay for the coat. Even in the 
simpler states of society, the inconvenience, loss of time, 
and deterioration of commodities involved in direct barter, 
are very great, and in more advanced states of civilization 
would be intolerable, if it were possible, as it is not, for 
society to become advanced under those conditions. Ex- 
changes are so limited in time, place, and variety, associa- 
tion is so hampered, and the development of all peculiar 
talents so impeded, under a system cf simple barter, that 
one of the initial steps in the progrebS of all societies has 
been to hit upon some expedient to lessen these intrinsic 
difficulties ; and so to facilitate exchanges. 

2. The invention of money was nothing in the world but 
the selection by certain people in a certain locality of some 



MONET. 317 

commodity then and there valuable, that is, capable of buy- 
ing some thiugs then and there, and giving to that by general 
consent the capacity of buying all things then and there 
salable. The thing made money, whatever it was, had a 
limited purchasing-power to start with, — no instance to the 
contrary has ever been shown ; the making it money was 
merely the common consent that thereafter it should have a 
general purchasing-power ; so that, whenever anybody had 
any thing to exchange, he might first exchange it for this 
product valuable before but now generally valuable, and then 
with this product in hand he might buy whatever he might 
want at any time or place. Money makes no alteration in 
any law of value, but merely substitutes for convenience* 
sake in every transaction in which it plays a part, a universal 
for a specific purchasing-power ; a book, for example, has a 
specific purchasing-power ; there is somebody who wants it, 
and is willing to give a sum of money for it ; and the owner 
by the sale of it parts with a product which has only the 
power to purchase something from a few persons, and re- 
ceives a product which has the power to purchase something 
from all persons ; it is not true to say that the book is worth 
more than the money, or the money is worth more than the 
book, because they are just worth each other, as is demon- 
strated by the sale ; but it is true to say that the seller of the 
book has substituted in the place of a limited purchasing- 
power, of which he was proprietor, a general purchasing- 
power, of which he has now become proprietor ; and that the 
command of the money, which has no more value than the 
book had, does carry along with it a superior command over 
purchasable articles generally. In one word, value in the 
form of money is in a more available shape for general pur- 
chasing, than value in any other form. This is the exact 
expression for what truth there is in the common vague 
remark, that money is different from all other commodities ; 
in point of value, it is different from other commodities in 
*ust one respect, namely, while they have the power of buy- 



318 POLITICAL ECONOMY. 

ing some sorts of things from some persons, it has the 
power, derived from the usages of society, to buy all sorts 
of things from all persons. 

3. This simple change, which seems in itself so little and 
easy and natural, has changed in its results the face of the 
world ! It makes the selected commodity seem to the minds 
of men to be a quite different thing from what it was before. 
It removes, as by a stroke of the hand, most of the incon- 
veniences of Barter. So soon as a commodity selected to 
be money by one people comes to be acceptable as such to 
all other peoples, the advantages of its use are vastly mul- 
tiplied. Experience has shown, and a little reflection will- 
explain, how that there is no machine that has economized 
labor like money ; no instrument which plays so important 
a part in production ; no invention, unless it be the inven- 
tion of letters, which has contributed more to the civilization 
of mankind. "While men still exchanged in kind, and knew 
no other mode, the purchasing-power of a service was very 
much confined in place, and would not be parted with except 
in view of the return service actually there present, — the 
ultimate parties to an exchange must for the most part come 
together locally, in order to effect an exchange ; under a 
money system, this is no longer necessary, for it is sufficient 
to constitute a market for any commodity that it is wanted 
anywhere on the globe, the middle man, paying the seller for 
it in money, transports it thither, and receives back his 
money with a profit from the ultimate consumer. Thus 
money brings conveniently buyers and sellers together com- 
mercially, no matter how far separated locally. So, also, 
money generalizes any purchasing-power in point of time. 
The fruit-dealer, for example, must dispose of his product 
quickly, or it perishes on his hands, but by transmuting his 
perishable product into money, he may keep its power of 
purchase locked in this form as long as he lists ; the money, 
indeed is only good to purchase with, but it puts an interval 
at the pleasure of the holder between selling and buying, 



MONEY. 319 

and with this generalized power in his pocket he may buy 
when he will, and what he will, and where he will. Money, 
too, makes any purehasiug-power portable, divisible, and 
loanable. A man may carry the value of his farm in his 
purse, and ma}' divide it up for a thousand different pur- 
chases, and especially is able to loan it in this form, to 
receive it back again with interest at a future day. 

4. It is obvious, and yet important to notice, that, what- 
ever made the commodity selected as money originally desir- 
able and valuable, it has now become desirable and valuable 
for other and wider reasons. The tobacco of Virginia, 
for example, in the early days of that colony, became valua- 
ble at first on account of the demand for it as a narcotic 
both there and in England ; but so soon as it was made a 
legal money in the colony by the general consent already 
described, its value depended in part upon another set of 
causes. Demand and supply still controlled its value just as 
before, only parties who had not desired it as a commodity 
merely desired it then as money. Its convenience as money 
widened the circle of those willing to receive it and to render 
a return for it. It is true, that some received it only because 
they could pay it out again ; but that made no difference so 
far as value is concerned ; it was valuable before under a 
certain demand, and continued valuable under an additional 
demand ; we cannot say that it became more valuable under 
that demand, because we do not know how the combined 
demand affected the supply ; we may probably say, that (he 
value became steadier, if not larger, under the double de- 
mand, than under the previous single one ; and the vital point 
to note is, that the value of money, previously valuable as a 
commodity only, is maintained under the law of demand and 
supply, just as all other values are, the only peculiarity 
being this, — that, as a generalized value and a potent social 
agent, money is in demand by everybody who has any thing 
else to sell. 
. 5. It follows from this, that money as such, whatever mav 



320 POLITICAL ECONOMY. 

have been the ground of its original value as a commodity, 
is always received in order to be parted with. It is not bought, 
as other things are, for its own sake, to be used and enjoj'ed, 
but is only bought to be sold again. Men will sell every 
thing to buy it, with the sole intent to sell it again to buy 
something; and the odd thing about it is, that everybody 
buys it to sell again, not at all as the speculator buys cattle 
to sell them again at a higher price, but, the money remaining 
constant in their minds, they sell for it something they care 
less about in order to buy with it something they care more 
about. Money is, therefore, a medium in men's exchanges. 
The word " medium " in this proposition, is to be taken in 
its etymological and strict sense, as something that comes 
between two extremes, and serves also to relate them to each 
other. Money is exchanged for other things, as a means, 
and not as an end ; it is a very great help in exchanging all 
other things, but is never exchanged for itself in an ultimate 
transaction. Small boys, indeed, swop cents, but men, the 
miser excepted, who is under a deplorable fallacy of the 
senses, use and estimate money first as the medium which 
facilitates the real exchanges of society. What is really 
exchanged is the wheat, the cloth, the lumber, the furniture, 
the service of every kind, and money is but the instrument 
making those exchanges easy, which might perhaps go on 
without it, though with difficulty and loss. It is somewhat 
like a railroad ticket. Transportation to a given place is 
what is really bought when one buys a railroad ticket. The 
evidence of the purchase is the bit of paper. It comes in 
as a medium between the traveller and the railroad company, 
and while it facilitates the real exchange, it also partly dis- 
guises it. The resemblance holds in the main feature, but 
in two respects the likeness fails ; money is not a specific 
ticket for one purpose, but is a general ticket for all purposes 
of purchase ; and secondly, money really stands as a value 
in its own right, at the same time it is serving as a medium, 
while the ticket does not. Still, we are all desirous to gel 



MONET. 321 

money, not for the sake of the money, but for the sake of 
those things which the money will biry. We part with it 
freely and constantly for those things which we care more 
about. What we really care for is what the money will buy, 
is the command over all services and commodities which the 
possession of money insures. If we could give our own 
s TYK-c or commodity, whatever it is, and receive directly in 
return the service or commodity- which we want, whatever 
it is, there would be no need of money. This is generally 
inconvenient, and sometimes impossible. Therefore we in- 
troduce a middle term between the two extreme terms. Money 
is a good mean which helps exchange the two extremes. 

6. We are getting on towards a just conception and a true 
definition of Mone} T , though a few more points must still be 
noted as preparatory to that. It is a result of the fact that 
money serves as a medium in exchanges, that the power of 
money as a medium is multiplied by what has been called 
rapidity of circulation, by which is meant, that, a brisker 
use of the volume already in circulation will reach the same 
end as an increase of its volume. As in mechanics, so in 
money, the whole power is the product of mass and velocity. 
Money is like any other tool ; the more constant its use the 
more profitable its agency. The quick movement of a small 
mass is better than the torpid movement of a large mass, 
both in what it saves of expense, and in what it presupposes 
of the general conditions of exchange. The value of the 
money of any country is a small fraction of the value of 
that which it helps to exchange directly ; and a very small 
f) action indeed of the value of that which it helps to ex- 
change indirectly through credit by means of its denomina- 
tions; for, as we shall sec better farther on, money works 
not only as a medium direct, — itself exchanged against 
other services, — but also as furnishing those denominations 
of value, like the doUar, which are always used in bargaining, 
and in those cases of credit in which settlement is nol made 
by money, but by off setting one piece of indebtedness against 



322 POLITICAL ECONOMY. 

another, which denominations can spring only from the use 
of money as a direct medium. Therefore we see that the 
hub and the spokes and the rim of the wheel of exchange 
consist of personal services, credit-claims, and all commodi- 
ties but money, while, to borrow the famous comparison of 
Hume, money itself is but the grease which makes the wheel 
turn easier. It would be a vast mistake to suppose, as sor.e 
of the ancients did, that the grease is really the wheel. 

7. While money thus makes easy the revolution of the 
wheel of exchange, it follows also from its nature as a 
medium, that the dimensions of the wheel itself are vastly 
greater than they would have been had it not been for 
money. Money indeed helped exchange the products that 
already existed at its first invention, but by far the largest 
part of products since have come into existence largely 
through the agency of money. We get quite too low a view 
of the function of this potent agent, if we think of it merely 
as an aid in circulating products that would have existed 
whether or no ; some products would have existed whether 
or no, and money certainly is of great use and convenience 
in helping bring these to the ultimate consumers ; but this 
is a partial and wholly inadequate view of the function of 
money as a medium of exchange. The fact that such a 
medium is in universal circulation, and that the holders of it 
f re ready to exchange it against any sort of services adapted 
to gratify their desires, exercises a kind of creative power, 
and brings a thousand products to the market which would 
otherwise never have come into existence. Since money will 
buy any thing, men are on the alert to bring forward some- 
thing which will buy money ; and since money is divisible 
into small pieces, an incredible number and variety of small 
services are brought forward to be exchanged against these 
pieces, which services we have no reason to suppose would 
ever be brought forward at all, were it not for the strong 
attraction of the money. 

8. From this last point of view we may gain another coii- 



MONET. 3S3 

uected with it, namely, that money must be a very important 
part of the capital of the world. Capital as we have already 
learned, is any product outside of man himself from whose 
use springs a pecuniary increase. The circulating medium 
of any country is the most active, the most profitable, and 
the most essential of all those instruments reserved in aid cf 
further production. The axe, the plough, the spindle, the 
loom, the wheel, the engine, are all instruments, are all capi- 
tal, and they each aid respectively some part or parts of the 
processes of production ; but money is a form of capital 
which stimulates and facilitates all the processes of produc- 
tion without exception. Just as we have seen that money 
is a form of value generalized, so is it also a generalized form 
of capital, that is to say, it is an instrument capable of aid- 
ing all production in every department, while every other 
instrument is capable of aiding but few processes in one 
department. Without money, there could be no thorough 
division of labor, because there would be no adequate means 
of estimating or rewarding each one's share in a complicated 
process. By means of money, all services, small or great, 
contributing toward a common product, are neatly measured 
and paid for by some one, who thereby becomes proprietor 
of the whole product; or, if the contributors choose, they 
may wait till the product itself is sold, and then the money 
received is divisible without loss to each contributor, accord- 
ing to the service rendered. Thus the influence of money, 
as capital, pervades the whole field of exchange, from centre 
to circumference, facilitating every transfer, and stimulating 
to new transfers. 

9. If money be, as it is, a medium in exchanges and tbus 
a peculiar kind of capital, the question is pertinent, How 
much of it is wanted? Clearly, only so much as will serve 
the purposes which such a medium is fitted to subserve ; 
there should be enough fairly to mediate between the ser- 
vices actually ready to be exchanged then and there, and also 
enough fairly to call out other services, proper and profitable 



324 POLITICAL ECONOMY. 

in the then circumstances of society, and whose only obsta- 
cle to a profitable exchange then and there, is the lack of a 
facilitating medium. All increase of money beyond this 
point, which the very nature of money itself marks out as 
the boundary, leads to a diminution in value of every part 
of it, to a consequent disturbance of all existing money con- 
tracts, to a universal rise of prices which are illusory and 
gainless, to unsteadiness and derangement in all legitimate 
business, and to a spirit of restless enterprise and specula- 
tion, which seeks to draw off the excess of money in untried 
and reckless experiments. The real subjects of exchange 
are mutual efforts, mutual services, and money is the instru- 
ment merely that comes in between the real services exchanged 
to facilitate the exchange ; and therefore it seems to be per- 
fectly conclusive on the point to remark, that the quantity 
of money needed in any country, or in the whole world, is 
limited by the number of the services ready to be exchanged, 
to facilitate the exchange of which is the good purpose and 
end of money. The physical and mental powers of men, 
which alone give birth to services, when considered, as they 
must be in this connection, as belonging to a given number 
of men at a given time and place, are strictly limited ; and 
although the presence of money then and there is both a 
stimulus and an aid to their bringing forward services of all 
sorts to the market, there are obvious limitations both in their 
powers and in their circumstances ; and the quantity of money 
needed among them is just that quantity which will fairly act 
as a medium in exchanging the services which they are able 
and willing to render to each other. All increase in the quan- 
tity of money beyond that point would have, and could have, 
the only effect of increasing the nominal prices of services, 
without making the services themselves any greater in num- 
ber or better in quality. It is with money exactly as it is 
with any other forrr of capital, allowance being made for 
the fact that money is a kind of generalized capital. How 
many ships does a commercial nation need to employ? As 



MONEY. 325 

many as will fairly take off its exports and bripg in its im- 
ports. Ships are wanted for one definite purpose ; and when 
enough are secured to answer that purpose, idl additions to 
the number will lessen the value, that is, the purchasing- 
power of ships generally. So of all instrument? whatever. 
Enough is as good as a feast. Enough is better than more. 
Iu regard to every form of capital, the point of sufficiency 
is determined by the quantity of work to be done. 

10. It will help us now, having seen som«* of "Ae more 
obvious functions of money, to look at some of the commodi- 
ties that have served as money at different times and places. 
"We have already in the first chapter quoted passages from 
Homer, which indicate that oxen were already an incipient 
money iu the Heroic age. We cannot certainly infer- when 
it is said in Genesis that "Abraham departed out of Egypt 
very rich in cattle and silver and gold," that any of these 
were any thing more than articles of valuable merchandise ; 
but it is certain from the Latin name of money, pecunH, 
derived from the word pecus, meaning cattle, that cattle wero 
the money of the early Eomans, and Eliuy sa} 7 s that Serviu* 
Tullius stamped the first bronze money with the image of 
cattle, — probably indicating by that, some equivalence in 
value between the two. Cattle at any rate have been used 
as money among pastoral people very widely in place and 
time, and are still so used in Africa. 

Before Pheidon coined silver money in Greece (869 B.C.).. 
copper skewers were used as money in that country, of which 
six made up a drachm which was afterward both a coin and 
a weight, the coin being worth about seventeen cents of our 
money, — rather more than a Roman denarius, — and tie 
weight being about sixty-six grains avoirdupois. The wo:d 
drachm is derived from Spdy/xa, a handful, and the sixth part 
of it, called an obol, from the Greek word meaning a spit, 
became also both a coin and a weight, which makes it evi- 
dent that these skewers were used in connection with roasting 
meat, and that one of them was originally both a unit of 



326 POLITICAL ECONOMY. 

value and of weight. In Adam Smith's day, in certain 
districts in Scotland, nails were still used as small money, 
which is a forcible reminder of these old Greek skewers. 

Cowry shells are used in the East Indies and also in Africa 
in the place of small coins, and have sometimes been inu 
ported into England from India to be exported in trade to 
the coast of Africa : these count in Bengal at about 3,200 to 
a rupee (46 cents) . The New England Indians also used 
beads of shells of periwinkles (white) , and of clams (black) , 
of which 360 made up a belt of wampum, as they called it, 
the black being counted worth twice as much as the white ; 
and the English colonists accepted the wampum in their ex- 
changes with the Indians, regarding a string of white as 
equal to five shillings, and a string of black to ten shillings, 
and afterwards made it legal tender for small sums among 
themselves, and even counterfeited it. Bullets also once 
passed in Massachusetts at a farthing apiece, and were legal 
tender for debts of less than one shilling. The shells had a 
value as ornaments to the Indians, and the bullets were 
useful to the colonists, previous to and separate from their 
use as money. The same will be noted of all the other things 
now to be mentioned. 

Cakes of tea have passed as money in India, and elsewhere ; 
and it is said, that at the great annual fair at Novgorod in 
Russia, the price of tea has first to be determined before the 
prices of other things can be settled upon, since that is a 
kind of standard of values in that great mart. Salt has 
been current money in Abyssinia ; codfish in Iceland and 
Newfoundland ; beaver-sJcins in New Netherlands, New Eng- 
land, and the western parts of America ; iron was money 
in Sparta ; leaden money was known to the ancients, and is 
still current in the Burman empire ; the earliest coins proper, 
were undoubtedly of bronze, a mixture of copper and tin, 
and Sicilian, Roman, and old British coins of tin alone are 
known to have been struck ; the Romans first coined silver 
money in 269 B.C., and gold money in 207 B.C., though 



MONEY. 327 

geld coins bad been known in tbe East long before they 
were stamped in Greece, wbicli was about tbe time of Alex- 
ander tbe Great, sa}*, 333 B.C. ; and Herodotus make a the 
statement, that tbe Lydians of Asia Minor were tbe fiist to 
make a coinage of electricm, whicb some claim, was a mixture 
of gold and silver, of wbicb ancient specimens are still ex- 
isting. 1 

"We do not here try to give a full list of tbe things that 
have been used as money in tbe earby states of society. In- 
deed, so great is the need of some such form of generalized 
value, in order that exchanges may grow to any considerable 
size, that there would be no ground for surprise in any list 
however large and varied. It may be held for certain, how- 
ever, that nothing has become money in primitive times or 
states of civilization, which was not previously valuable. 
Tbe apparent exceptions to this do not seem to be real ex- 
ceptions. Tbe Carthaginians had a kind of leather money, 
which originally enclosed bits of tbe precious metals, and 
circulated in virtue of them, though the}' afterwards came 
to cu-culate as bits of leather only, as counters, in a way that 
will be explained later. According to tbe Venetian trav- 
eller Polo, China had in the 13th century, a money made 
of the bark of the mulberry tree, cut into round pieces and 
stamped with the name of the sovereign, wbicb money it 
was death to counterfeit or to refuse to take in any part of 
the empire. If we had tbe whole history of this money, it 
surely would ally itself either with the other commodity- 
moneys now being treated, or with the modern credit-moneys 
made legal tender to be treated hereafter. The French 
writer Montesquieu, asserted that there was in use in the 
last century among the people of the coast of Africa, what 
he called "an ideal money," "a sign of value without 
money," tbe unit of which was called tbe macoute, which 
wis subdivided also into ideal tenths, called pieces. This 

1 Bee comments on this passage in Herodotus in Maclcod'a Econ Phil., vol. U 
p. 367. 



328 POLITICAL ECONOMY. 

statement was startling, as implying a denomination without 
the thing denominated, as implying a standard of value 
which had no basis in a valuable thing. It was discovered, 
however, afterwards, that this money of account had its 
origin, just as we should suppose it must have had, in an 
actual macoute, namely, a piece of stuff, a fabric which they 
had used first as a commodity -money, and afterwaids its 
name as a money of account. A valuable thing may become 
money, and then its name may become a denomination of 
value, and still later a bit of leather or a bit of paper may 
be called by the same name and in a certain sense take 
the place of the same thing. All this will be clear by 
and by. 

As civilization has advanced, and the nations have come 
into closer connection with each other, experience has al- 
ready driven them for the most part to drop the more tenta- 
tive and factitious commodities in favor of the precious 
metals so-called as the best material for money. Gold and 
silver coins are now acceptable in almost all parts of the 
known world ; and in many parts of the world nothing else 
is acceptable as money ; experience has shown in their 
almost universal adoption the superiority of these coins over 
all other forms of money ; and we shall soon see the grounds 
of this manifested superiority. 

11. We are now ready to look into the inmost nature of 
money through an ultimate definition. Money is a current 
and legal measure op services. The word "legal" in 
this definition is not always to be pressed to its utmost sig- 
nification, but denotes any thing sanctioned by law or usage 
equivalent to law. The other words are to be taken in their 
full and technical meaning. It is believed, that, while the 
definition is short and simple, it just covers the whole ground 
and no more. It is not enough that a certain commodity be 
legal as money ; it must also be current in order to be a true 
money. In this country between 1862 and 1879, gold 
coins, though legal tender all the time for all debts, were 



MQJVEY. 323 

not current in the full sense of that terra, and hence were 
not the money of the countrj 7 . Till the hitter date, gold 
coins were required to pay duties with, and the interest on 
the public debt, and were used to a small exteut in a few 
branches of private business, and were not otherwise in the 
hands of the people. They were not strictly money, but 
bore a premium over the current money of the country. To 
be money, then, a commodity must be recognized as money 
by law, or custom as strong as law, and also circulate among 
all classes of the people as a medium in their exchanges. 

But mouey becomes a medium in exchanges, because it 
first becomes a measure of Services. Some think that the 
two functions are separate, and of equal rank. It is easy 
to see that one only is original, and that the other is derived. 
Even Aristotle saw that money is a Measure, inasmuch as he 
defined property ' ' any thing that can be measured by money. ' ' 
We may be pretty sure, in opposition to Professor Jevons, 1 
who thinks there are four characteristics of money, that 
money as such has but one primary characteristic difference 
from other forms of value, namely, this measwe-quality, 
this standard-quality, this publicly recognized function as a 
common measure, to which all other values are constantly 
referred. This additional attribute put upon money by the 
action of society in law or custom is not what imparts its 
value to money, since an ounce of uncoined gold is toorth 
within a very small fraction as much as an ounce of gold 
coins, but it makes the money a far more convenient instru- 
ment to purchase with, inasmuch as money, having now the 
attribute of making all other values easily commensurable 
with itself, \ ^ comes at once something which everybody is 
willing to receive, because eveiybody knows in general what 
its power will be to purchase all other things. In other words, 
money becomes a medium in exchanges, just because it has 
already become a measure of Services in general ; and there 
are not in reality two prime functions of money, still lesi 

1 iluucy and the Mechanism of Exchange, p. 13. 



8&0 POLITICAL ECONOMY. 

four, but only one. This view seems to simplify the subject 
of Money very much, and we may be sure that it will be 
found to be scientifically correct, and shall have many means 
of testing its accuracy as we proceed. 

12. The only thing common to salable things is the fact 
that they all are salable, and if they are to be made in any 
way commensurable with each other, it must be by means of 
one of their number assumed as a standard of comparison 
with the rest. This is just what is done when any thing is 
selected as money : it was valuable before, but now it has 
become a standard, with which other valuable things may be 
compared in the single point of their value. In other words, 
to render money is to render a Service, which, from its very 
nature as money, is capable of measuring all other Services 
whatsoever. Without some common measure of services, it 
would be inconvenient, not to say impossible, to carry on 
traffic at all. For instance : A baker has only loaves of 
bread, and wishes to buy a hat, a horse, a house. How 
many loaves shall he give for each? Unless there be some 
common Service, in the terms of which these differing values 
can be expressed, and by means of which they can be brought 
into numerical relations with each other, it would be an awk- 
ward piece of business to effect even the three exchanges ; 
and every time the baker wished to buy another article, there 
must be a rude and slow calculation from independent data, 
to decide upon the terms of the exchange. Let now some 
common service be introduced, in the terms of which each 
of these values can express itself, and the difficulty disap- 
pears in an instant. "My loaves are worth ten cents each," 
says the baker. "My hat is worth ten dollars," says the 
hatter. Their saying so does notindeed make it so ; but each 
has come to that approximate conclusion by a relatively easy 
comparison of two services ; and if the loaves bring ten cents 
and the hats ten dollars, the terms of their exchange are one 
hundred for one, and there is no need of parleying. So of 
the rest ; so of every thing that is ever bought and seld. 



MONEY. 331 

Money becomes by common consent a measure of them ; 
because it measures them, it makes the interchange of them 
far easier ; because it measures them, it becomes a medium 
between them ; and because money rendered is itself a Service, 
it is a natural and universal measure of all other Services. 

This is better than to say, in common with man) 7 econo- 
mists that " money is a Measure of Value." That phrase 
is objectionable, because, value is always relative to two ser- 
vices exchanged for each other, and to say that money is a 
measure of that relation is neither so simple nor so ultimate 
as to say that it is a measure of each of the services that 
enter into that relation. The Services may be conceived of 
and spoken of separate from the Value into which the}* merge, 
although they come into existence solely for the sake of that 
resultant value ; so money may be conceived of and spoken 
of separate from the exchanges in which it finds its sole 
significance ; and it is strictly accurate to say, that money, 
itself a service, is a measure of all other services, considered 
as constituent elements of the values into which the} 7 fall. 
We are not without hopes, accordingly, that competent econo- 
mists will concede, that here is an improvement in the nomen- 
clature of our science. Money is the measure of services. 
Its other functions are the result of that. 

As all values are the result of a comparison, it is not strange 
at all, rather it is natural and inevitable, that there should 
arise in connection with them some such comparative measure 
as money is ; and it is of some consequence to notice, con- 
trary to what has often been said, that the real measure is 
the money itself, and not its denominations, — the thing-doWixr 
and not the denomination-doWar. The denominations are 
used in bargainings and calculations as representatives of the 
money itself, and thus indeed in a secondary sense serve as 
measures; but the subtle connection between the thing and 
its name, betweu inonc}' and its denominations, and the differ- 
ences between the two, need to be clearly unfolded, because 
most of the current fallacies about money take their rise just 



332 POLITICAL ECONOMY. 

at this point. An illustration will best serve us here. The 
original measure of Services in France, England, and. Scot- 
land, was the pound weight of silver. No coin of that weight 
was ever struck ; but a pound of silver was cut into 240 coins 
called pence. Twelve of these pence were called a solidds, 
or shilling. Thus as applied to silver, the symbols lb. and £ 
denoted equivalent weights, the former of uncoined metal, 
the latter of metal coined. But in course of time, more 
than 240 pence so called, and at last in Elizabeth's reign, 
744 peace, came to be coined out of a lb. of silver. Yet all 
the while, 240 of these pence were called a £. £ and lb., 
both a contraction of the Latin libra, were no longer equiva- 
lent. The lb. of weight continued stable : the £ of money 
had dwindled to less than one-third. Yet the name pound 
continued to attach to 240 pence, although the pence em- 
bodied a less and less quantity of silver. Each actual penny 
had less silver in it, and though it was still called a penny, 
the denomination, though spelled and sounded as before, rep- 
resented less silver, and therefore, less value, than before. 
The denominations follow the fortunes of the coins, whose 
names they are, to the frequent loss of the unthinking, who 
suppose the same name must represent the same thing. In 
1834, the gold eagle of the United States was reduced in 
weight from 270 to 258 grains troy, and the alloy increased 
from one part in twelve, to one part in ten. These changes 
took out more than six parts of gold in every one hundred 
parts, in all the gold coins of the country. Yet all the coins 
bore the same names as before. Other things remaining equal, 
the coins lost about six per centum of their purchasing-power, 
or in other words, general prices rose in that proportion ; the 
measure became smaller ; and the words dollar, eagle, and so 
on, though outwardly unchanged, varied simultaneously and 
equally with the change in the coins. 

Also, coins are liable to change in their function as a meas- 
ure from changes in the general purchasing-power of the 
metals. If for any reason an ounce of gold will buy less 



MONET. 333 

of other things than formerly, the coins cut from that gold 
will buy. less than formerly, and this change in the measure 
is followed of course by a corresponding change in the denom- 
ination. Other tables of denominations have a basis inde- 
pendent of the things which they help to measure, and are 
not variable by the quality or quantity of those measurable 
things. A French metre, for example, is an invariable unit 
of length the world over ; so is one of Troughton's inches ; 
but this is not true of the denominations of money at all. 
Pounds sterling, dollars, marks, francs, are denominations 
of value, which is itself a variable relation. Such denomi- 
nations, consequently, are not an independent standard to 
which values themselves can be referred, as lengths are re- 
ferred to the metre, but vary with the varying purchasing- 
power of the coins. The dollar, as a denomination, means 
more or less, just according as the dollar, as a coin, buys, 
that is, measures, more or less. Still, it is vastly important 
for the interests of exchange that the accepted measure of 
Services be as little liable to fluctuations as possible, espe- 
cially in all cases in which lapse of time is involved before 
the exchange is fully consummated. For the same reason 
in kind, only multiplied a thousand-fold in force, that the 
bushel measure should be of the same capacity in sowing- 
time and in harvest, to sell by and buy by, always a bushel, 
no more and no less ; and the yard-stick an inflexible meas- 
ure of length, always thirty-six of Troughton's inches, no 
more and no less ; so, as far as it is possible in the nature 
of things, ought the measure of Services, and hence its 
denominations, to represent year in and year out a uniform 
degree of purchasing-power. 

In the place of our expression, " the measure of Services," 
and the foregoing explanation consequent upon its use, Pro- 
fessor Walker 1 prefers the phrase, "the common denominator 
in exchange," and Prof cssor Price 2 is fond of the formula 
(and it is a good one), " the tool of exchange," and Mr. 

1 Money, pp. 280 et seq. » Practical Political Economy, 1S77, p. 303. 



o34 POLITICAL ECONOMY. 

Macleod, 1 who is more or less fortified in his view by Bastiat 
and Price, strangely insists that money is " the representa- 
tive of Debt." He says : " The quantity of money in any 
country represents the amount of Debt which there would be 
if there was no money ; and consequently where tliere is no 
debt there can be no money." The unfortunate use by some 
countries of a paper money, which is indeed a form of debt, 
gives some plausibility to the notion that money is a repre- 
sentative of debt; and perhaps the fact that monev is often 
used to pay debts previously contracted, and that lebts are 
usually contracted in the terms of money, gives some addi- 
tional plausibility to this view ; but as Mr. Macleod himself 
goes on to say, that ' ' no substance possesses so many advan- 
tages as a metal for money," and that " all civilized nations 
therefore have agreed to adopt a metal as money, and of 
metals, gold, silver, and copper have been chiefly used," we 
do not see how he can consistently hold that a gold dollar, or 
gold sovereign, whose value is in no sense due to the process 
of coining, whose value is as substantive and independent as 
any value in the world can be, becomes through coinage and 
circulation a representative of debt. Instead of saying, as 
he does, " where there is no debt there can be no money," we 
may confidently say, where all transactions are settled at once 
in solid money, there can be no debt. 

13. This brings us to the considerations which determine 
what is the best money. Historically, coins of gold, silver, 
and copper, have been proven by an experience of about 
2,500 years to be more acceptable to' the people of the world 
as money than any other substances. There is a presump- 
tion, accordingly, that these in proper adjustments with each 
other constitute the best money. These have never been 
anywhere of equal value with each other : an ounce of gold 
has always been more valuable than an ounce of silver, and 
this than an ounce of copper. Moreover, the relative value 
of the three in each other has never continued permanent, 

1 Elements of Banking, 1876, p. 17. 



MONEY. 335 

even after the law has sought to ascertain and fix it. In 
Asia Minor, where coinage began, gold was the standard 
with silver as subsidiary ; in Greece, silver was loDg the sole 
standard, till Philip's victories established a double standard, 
gold being reckoned as one to twelve and a half of silver; 
while in Rome, copper was the original standard, which was 
displaced by silver in 217 B.C., and gold was legalized by 
Caesar as a co-standard in the ratio of one to about twelve, 
until in the reign of Alexander Severus, gold became the 
sole standard throughout the Roman Empire. After the 
downfall of that empire, gold maintained itself for a time 
in Spain and France, but silver gradually regained its lost 
place in Europe, to be again gradually displaced by gold as 
the standard. In 1717 a double standard was established 
in Great Britain, gold being rated to silver as one to fifteen 
and one-fifth, but in 1816 gold was made, by a law still in 
force, the sole standard, the legal use of silver being limited 
to forty shillings in any one payment. In France, silver held 
its own as a co-standard longer and better than in any other 
country in Europe. In 1800 the legal relation of gold to 
silver was fixed at one to fifteen and a half, and so continued 
till 187G, when the right of private individuals to have silver 
coined for them was taken away in behalf of the government, 
and only the five franc silver pieces continued to be legal 
tender to all amounts, the other silver coins becoming then 
only legal to pay debts to the amount of fifty francs. In 
1871, the German Empire adopted the sole gold standard, 
and limited silver to the amount of twenty mark* :r. any one 
forced payment ; but the old silver thaler continued to circu- 
late at the rate of three marks to a thaler. Since 1875, the 
Scandinavian Union permits gold .alone to be coined for pri- 
vate persons, and limits the debt-paying power of silver to 
twenty crowns. A franc is 19.29, a mark 23.82, and a crown 
2G.78, of our standard cents. 

As Belgium, Switzerland, Spain, Italy, Greece, and Austro- 
Hungary in part, act with France in monetary matters, it is 



336 POLITICAL ECONOMY. 

plain that the tendencies are towards the adoption of gold 
as the single standard, and of silver as subsidiary money 
only. Copper, which was the only money in early Rome, 
and is still the only legal coinage in China, has come in most 
modern coinages to be a token-money only, that is, a money 
circulating in small sums without reference to the value of 
the metal. In 1738, the relative value of silver to copper 
in France was one to forty ; in 1803, one to one hunched ; and 
in 1852, one to about one hundred and fifty. The French 
copper centime (one gram) , the English penny (9.149 grams) , 
and the present Uuited States copper cent (3.11 grams), all 
circulate as money much above their value as metal. Dis- 
missing copper, then, as only useful for money in this very 
subordinate way, and remembering that gold and silver stood 
in ancient times in about the ratio of one to twelve, and stands 
in modern times not far from the ratio of one to sixteen, it 
may be said in general that gold and silver coins make the 
best possible money. It is convenient to have money of the 
two metals notwithstanding the impossibility of maintaining 
a steady legal valuation between them. For reasons to be 
given shortly, gold ought to be exclusively the standard, as 
it has now come to be in Europe ; it ought to be the only 
legal tender for large sums ; but silver coins are useful for 
the lesser exchanges, as gold ones would be too small for the 
purpose ; and there is no objection to the present usage of 
all the leading nations in lessening the weight of the silver 
coins below their supposed ratio to gold, so as to allow a 
considerable change in the market value of gold in silver 
without tending to export the latter from the country. Eng- 
land, France, Germany, and the United States have debased 
their smaller silver in weight, so that the nominal value of 
these coins varies from seven to fifteen per centum above 
their bullion value. This is at once a profit to the govern- 
ments, and a security to the peoples that they shall not lose 
their small change by export. 

(1) The first and main reason why gold and silver make 



MONEY. 337 

the best money is found in their comparatively steady value. 
Money is a measure of all other valuable services, and there- 
fore its own value must be as steady as it can be made, and 
gold and silver meet this test better than any thing else. 
Money is not a representative of value ; it does not owe its 
value to the stamp impressed upon it ; its value arises under 
the same conditions as every other value, and is variable by 
any change in any one of the four elements which alone can 
vary the value of any thing ; and it seems that nothing more 
is needed in order to remove the last vestiges of the dark 
cloud which has so long overhung this subject, than to fa- 
miliarize ourselves first of all with the true doctrine of value 
in general, and then hold fast the truth, exemplified on every 
side, that the value of money is just like every other value. 
Let us see, then, why the value of gold and silver money is 
so steady. 

(a) On account of the comparatively steady demand for 
these metals. Gold and silver are wanted for two general 
purposes : first, to be used as money, and second, to be used 
in the arts ; aud it has been estimated that about two-fifths 
of the aggregate quantity in the world is in the form of 
money, and the other three-fifths in the form of plate, uten- 
sils, and ornaments. Now, so far as the element of desire 
controls value, the purpose for which any article is desired 
is a matter of indifference. The aggregate desire for it for 
all purposes, accompanied with the offer of something with 
which to buy it, constitutes the demand; and the more uni- 
versal the desire, no matter for what purpose, the steadier 
the demand, and, so far forth, the steadier the value. It is 
worth noticing, as a point still too little noticed, that it is not 
the demand for the precious metals as coin alone that deter- 
mines their general value, nor the demand for them in the 
arts, but the combined demand for all purposes ; just as the 
value of barley is regulated, partly by the demand for it for 
food, aud partly by the demand for it for malting purposes. 
Hence an ounce of bullion of the standard fineness, destinec 



338 POLITICAL ECONOMY. 

for the smelting-pot of the artisan, is worth within a very 
trifle as much as an ounce of coined money. By the law of 
the Bank of England an ounce of standard gold is coined 
into £3 17s. \0\d., and the Bank is obliged to buy all bullion 
and foreign coins of the standard fineness offered to it at 
£3 17s. dd. per ounce — a difference of three half-pennies. 
Now, gold and silver are so indispensable in the form of 
money, so beautiful in the form of ornaments, so well 
adapted to serve the purposes of luxury and love of distinc- 
tion, so really useful in the arts, that the demand for them 
is constant and well-nigh universal ; and if, in the progress 
of civilization, a less quantity should be desired for personal 
ornamentation and purposes of luxury, a greater will doubt- 
less be required for the other uses ; and so, as the demand 
in the past has been steady, and perhaps steadily increasing, 
there is every reason to expect the same for the time to come. 
And it contributes to the steadiness in value of the gold and 
silver coin, that there is at hand in the form of plate a reser- 
voir from which a chance chasm in the coin may be replen- 
ished, or an extra demand for it answered. 

(b) On account of their tolerably uniform cost of produc- 
tion. Not desires alone, but efforts as well, regulate value. 
Supply is the correlative of demand ; and when to a steady 
demand there answers a steady supply, realized under condi- 
tions of pretty uniform difficulty, there will be of course a 
pretty steady value. Nature herself has indicated, in a man- 
ner not to be mistaken, her intention that these metals should 
be the money of the nations. She has scattered them all over 
the earth, and so scattered them that the cost of their produc- 
tion has been on the whole pretty steady ever since civilization 
and commerce began in earnest. There have been but two 
or three striking changes in the value of gold and silver owing 
to easier and larger Supply in the commercial world during 
the last 500 years. The discovery of the mines of Potosi in 
1545, and the large influx of silver into Europe from those 
and other American sources, with the stimulus thereby given 



MONEY. 3S9 

to the working of European mines, so increased the stock of 
silver, that its value, us measured in grain or other commodi- 
ties, declined in Europe from 1570 to 1G40 to about 25% of 
its previous purchasing-power. Adam Smith thinks (I. 187 
et seq.) that silver did not fall in value before 1570, nor con- 
tinue to fall after 1G40. The discovery of gold deposits on 
the Pacific coast of the United States in 1848, and a similar 
discovery in Australia in 1851, enlarged the annual supply 
of gold from 8-40,000,000 in 1848 (Chevalier) , to an average 
of $130,000,000 for the five years ending in 1859 (Jevons) ; 
and the latter writer estimates the fall of gold from 1845 to 
18G2 at about 15%. So the opening of the fertile silver 
mines of Nevada, which produced iu 1875 $32,000,000, car- 
ried down decidedly the value of silver the world over. But 
with exceptions like these, and similar ones are perhaps not 
likely to recur, the precious metals have always maintained 
and seem likely to maintain in the future a considerable uni- 
formity of value, so far forth as cost of production goes to 
determine value. Even the great changes just noted in the 
cost of the metals issued only gradual!} 7 in a rise of prices, 
which many were able to foresee and thus to provide for, but 
by which many more were caught aud brought into distress 
and even pauperism. The two classes that suffer the most 
under a fall in the value of moucy are the wages-receivers 
and the holders of long annuities and other similar obliga- 
tions. 

(c) On account of their quantity. The amount of gold 
and silver in circulation in the commercial world, to say 
nothing of the quantity so easily brought into circulation 
from the reservoir of plate, is so vast, that it receives the 
annual contributions from the mines much as the ocean re- 
ceives the waters of the rivers, without sensible increase of 
its volume, and parts with the annual loss by detrition and 
shipwreck, as the sea yields its waters to evaporation, with- 
out sensible diminution of volume. The yearly supply and 
the yearly waste are small in comparison with the accumula- 



340 POLITICAL ECONOMY. 

tions of ages ; and therefore the relation of the whole mass 
to the uses of the world, and the purchasing-power of any 
given portion, remain comparatively steady. It is probable 
that production at the mines might cease altogether for a con- 
siderable interval without very sensibly enhancing throughout 
the commercial world the value of gold ; as it is certain, from 
experience, that a production very largely augmented only 
gradually, and after a considerable interval, diminishes its 
value. The mass of the precious metals has been aptly com- 
pared to the heavy balance-wheel in mechanics, which pre- 
serves an equable and working condition of the machinery 
under any sudden increase of the power, and even when the 
power is for a moment withdrawn. Mint-Director Burchard 
estimated the amount of gold in this country on May 1, 1881, 
to be $520,000,000, of which $256,000,000 were in circula- 
tion; in Great Britain $596,000,000, of which $428,000,000 
were in circulation ; and in France $927,000,000, of which 
$816,000,000 were in circulation. The same authority es- 
timated the world's production of gold in 1880 to be 
$107,000,000, and of silver $87,500,000 ; the world's con- 
sumption in the arts that year as $75,000,000 of gold, and 
$35,000,000 of silver; and this country's annual use in the 
arts as about $11,000,000 gold and $6,000,000 silver. Just 
at this point a caution is needful. Because it is affirmed that 
the great amount of the precious metals is a ground of their 
firm value, it must not be supposed that we are going be- 
yond our general doctrine, and introducing another elemeut, 
namely, quantity, besides the four elements which, as we 
have so often alleged, can alone vary the value of any ser- 
vice ; quantity, in itself, is not an element capable of varyiDg 
the value of any thing, but taken in connection with durabil- 
ity, it is an element of what might, perhaps, with propriety 
be called the inertia of value, and tends to keep the purchas- 
ing-power of gold and silver where it is. Value and steadi- 
ness of value are two distinct ideas. The present value of 
an ounce of gold expressed in any other commodity is decided 



MONET. 341 

by four things alone ; but other elements besides these may 
help determine that that ounce of gold shall have ten years 
from now a purchasing-power approximately the same as 
now. It will depend, of course, in the last analysis, upon 
the relation of the then demand to the then supply ; yet the 
va*t quantity of the precious metals in existence, combined 
with their durability, prevents those fluctuations in the supply 
which are so destructive to a steady value. It is not as with 
the fruits and the grains, whose value varies perpetually with 
the seasons, and which are so perishable that they must be 
sold soon or never : gold and silver are almost indestructible, 
and except by wear and accident, the existing mass is not 
liable to be lessened, and in so far as the annual production 
from the mines exceeds the yearly waste there is a natural 
provision made for the natural increase of demand, to supply 
the wants of the world for money and for the arts, without 
much disturbing the relation of the demand and supply. The 
quantity, in connection with the durability of the precious 
metals, helps preserve to them a tolerably steady value from 
generation to generation. 

(d) On account of their fluency. Gold and silver are in 
demand the world over. Having great value in compara- 
tively small bulk, they are easily transported from continent 
to continent ; and whenever, from any cause, they become 
relatively in excess in any country, and thus lose there a 
portion of their previous purchasiug-power, there is an im- 
mediate motive to export them to other countries where their 
power in exchange is greater, and thus the equilibrium is 
restored. The value of gold and silver throughout the com- 
mercial world is thus kept pretty steady by the facility with 
which they are carried from points where the} r are relatively 
in excess to points where the} 7 are relatively in deficiency. 
There is a gain in carrying them to those countries where 
their power of purchase is the greatest, because more com- 
modities can be obtained for them than at home ; and 
private motives here coincide with public welfare, since 



342 POLITICAL ECONOMY. 

what the traders do in transporting gold and silver, with 
an eye to their own interest, helps maintain at home and 
abroad the steady value of these commodities. This law 
Oi the distribution of the precious metals by commerce, and 
the equilibrium of value resulting therefrom, is as natural 
and beautiful as the law which preserves the level of the 
ocean, or that which balances the bodies of the planetary 
system. This has come at length to be recognized by the 
nations, and the laws which used to forbid b}^ heavy penalties 
the exportation of gold and silver are all swept away, and 
these metals are now free to go, and do actually go,' where 
they can obtain the most in exchange. It is absurd to sup 
pose that their owners would carry them out of a country, 
unless they were worth more abroad than at home, and there- 
fore the prejudice which exists still in this country against 
the exportation of gold is a senseless prejudice. The gold 
is not given away ; it is sold, and sold for more- thaa it will 
buy at home ; otherwise it would not be carried abroad. 
There is the same kind of gain as in all other exchanges, 
and this great incidental advantage in addition, that, by 
means of free commerce in the precious metals, their general 
value is kept pretty uniform throughout the world, and a 
chance redundancy in the money of one country is drawn 
off to supply a corresponding deficiency in another. It may 
be laid down as an axiom, that no country will export, for 
the sake of getting other things, those things which are more 
needful for its own welfare ; and there need not be the slight- 
est fear that any nation which cultivates its own advantages 
under freedom will ever lack a sufficient quantum of the pre- 
cious metals. Under freedom, and so long as human nature 
continues what it is, these metals will go, and go in just the 
right proportions, to and from those countries which produce 
and offer in exchange those desirable services which other 
countries want. The greater the enterprise and skill, the 
keener the development of all peculiar and presently availa- 
ble resources, the more honorable and free the commercial 



MOXEY. 343 

system, the surer is any nation, whether it be a gold-bearing 
country or not, of securing the gold and silver which it needs. 
This is so, because there will be a good market to buy in, and 
they who have gold will resort thither to buy. But such a 
nation will also want to buy other things besides gold and 
silver, and when enough of the latter is secured for money 
purposes and the arts, the residue will be exported, perhaps 
to the very countries from which it originally came, in pay- 
ment for some products which those countries have an advan- 
tage in producing. The United States is a gold-producing 
country, and exported in the years 1850-1SG0, both inclusive, 
$502,789,759, coin and bullion ; and during the same perioc 
imported from other countries $81,270,571, coin and bullion. 1 
Now, there was a double advantage in that exportation. In 
the first place, more and better commodities were secured to 
the country than the gold could have bought in the country, 
for otherwise it would not have been carried abroad ; and, in 
the second place, this large sum carried abroad to various 
countries in exchange, not only prevented the disturbing 
effect on our own moneys of more than doubling in ten 
years' time our stock of gold, thus inevitably depreciating 
the whole mass, but also, by causing the new gold to impinge 
on the whole world's stock instead of on the moneys of a 
single nation, the shock of the new production on the measure 
of services, though perceptible, was reduced and deadened. 
The world's mass of the precious metals is comparatively 
torpid beneath the action of an accretion which would break 
down by its weight the metals of a single nation. There- 
fore, the fluency of gold and silver, by which they pass easily 
in commerce to those places where their present value in 
exchange is greatest, or to such countries as India and 
China which have shown for centuries a wonderful power to 
absorb the metals of the "West, aud return as easily when 
the conditions are reversed, or when a larger use of paper 
releases some portion of the coin, tends powerfully to make 

1 Report >n the Finances, 1863. 



844 POLITICAL ECONOMY. 

their general value uniform throughout the world, and conse« 
quently to make them the best medium of exchange and the 
best measure of value. 

(e) On account of this circumstance, that every general 
rise or fall in the value of gold and silver tends to check 
itself. This principle, indeed, is applicable to the value of 
all commodities, but owing to their quantity and durability 
pre-eminently applicable to the value of the precious metals. 
The check is double in either direction. First, let us suppose 
that the purchasing-power of an ounce of gold or silver be 
rising : then, production will be stimulated at all the mines, 
and the more stimulated as the rise is more, and the new and 
enlarged supply will tend to check a farther rise, and, unless 
the permanent demand has been intensified, to bring back the 
value to the old point ; moreover, when there is a rise in 
the value of the coin, there is a less quantity required to do 
the same amount of business, and the demand for gold which 
causes the rise tends to be checked by the rise itself, because 
a less quantity is needed for money-use in consequence of the 
rise. This supposes, of course, that the exchanges mediated 
by money are no greater than before. Thus a rise of value 
in gold and silver checks itself by natural laws in two ways. 
Just so of a fall in their value. Production is thereby slack- 
ened at the mines, and the lessened supply tends to enhance 
value ; and, if the same business is to be done as before, 
there is a stronger demand for money while the fall continues, 
and this demand tends also to restore the value. All this js 
in the interest of a steady value. 

(/) On account, lastly, of this circumstance, that a 
stronger demand for money is met either by increasing the 
stock of coin, or by an increased rapidity of circulation of 
that on hand. A brisker demand for money, especially if it 
be temporary, does not necessarily enlarge the supply, or 
alter the value, but only hurries round the existing money. 
Oscillations in the demand are responded to by a slower or 
more rapid circulation. This tends most admirably to keep 



MONEY. 345 

the value steady within certain limits. "When enterprises are 
multiplying ami exchai ges are being permanently increased 
in number and variety, then there must be a larger amount 
of money, and this lr.rger amount is secured in the ways 
dfreadv indicated, witl perhaps slight disturbances of value ; 
la t tut temporary ebbs and Hows of business have no effect 
at all on the mass of money, but ouly on its movement, and 
its value consequently is not disturbed at all. 

These six grounds appear to be satisfactory and sufficient 
to account for the superior steadiness of the value of gold 
and silver, so far as their value is determined b} 7 considera- 
tions relating to the metals themselves. We now proceed to 
the reasons additional to this why gold and silver constitute 
the best money. 

(2) The second general reason why gold and silver make 
the best money is found in the fact, that governments have 
little to say or do abovt the value, quantity, or mode of circu- 
lation of such money. In all essential respects such money 
regulates itself. These metals came to be money and con- 
tinue to be money in one sense independent of the enactments 
of any government. The people chose them : they still choose 
them. As we have seen, coins do not owe their value to the 
stamp of the government, since the metal in them is worth 
within a trifle as much before coinage as after. Coinage 
publicly attests the quantity and quality of the metal in the 
coin, and that is all. Of the value of their coins govern- 
ments say nothing. They can say nothing. That depends 
on men's judgments, and not on edicts at all. No law of 
the United States can add directly an appreciable fraction 
to the value of a gold dollar. The law makes it consist of 
twenty-five and four-fifths grains tro}- of gold nine-tenths 
fine, the mint sc stamps it, and thereafter it takes its own 
chance as to val ic. When, however, it is designed that both 
metals shall circulate together, it becomes needful that gov- 
ernment shall fix, as well as it can. not the general value of 
either, but the relative value of each in each. But this value. 



346 POLITICAL ECONOMY. 

too, regulates itself independently of edicts. The work, no 
matter how well done at fir.it by ascertaining the ratio in 
which they exchange in a fre? market, will require revision 
from time to time. 

Some governments charge a little for coining for their 
] cople, and some do not. What is charged is called seign- 
iorage. England coins gold for all comers at a seigniorage 
of .032%, — practically a free coinage. France charges for 
gold coinage .216% ; and by the law of 1874, the United 
States charge nothing for coining gold. It is left to the peo 
pie to say how much money they will have coined, and, having 
received it from the mint, they are at liberty to do just what 
they please with it, — they may hoard it, they may melt it, 
they may circulate it at home, and they may export it abroad, 
at will. Now, it is a great gain to have a money with which 
the government has nothing to do except to mint it, — a money 
that asks no favors, needs no puffing, never deceives anybody, 
knows how to take care of itself, and is always respectable 
and everywhere respected. 

(3) The third general reason why gold and silver make 
the best money, is found in their physical peculiarities, by 
which they are uniform in quality, conveniently portable, 
divisible without loss, easily impressible, and always beauti- 
ful.. Pure gold and silver, no matter where they are mined, 
are exactly of the same quality all over the earth. Gold is 
gold, and silver is silver. The gold mined to-day in Cali- 
fornia differs in no essential respect from the gold used by 
Solomon in the construction of the Temple, and the silver 
out of the Nevada mines is the same thing as the silver paid 
by Abraham for the cave of Machpelah. Nature with her 
wise finger has thus stamped them for the universal money ; 
and a universal coinage, that is, coins of the same degree of 
fineness, and brought into easy numerical relations with each 
other in respect to weight, and current everywhere by virtue 
of universal confidence in them, though bearing the symbols 
preferred by the nation that mints them, is one of the 



MONET. S47 

dream* and hopes of economists, that will be realized in 

some 

"Fair future day, 
Which Fate shall brightly gild. 

Gold and silver are sufficiently portable for all the purposes 
of modern money. Their weight is little relatively to their 
value. A thousand dollars in gold are not indeed carried so 
easily as a bill of exchauge or a bank-note ; aud expedients 
are easily adopted, and have been in use since the days of 
the Romans, by which the transfer in place of large masses 
of coin is for the most part obviated ; and these expedients 
will all be explained in the following chapter on Credit. For 
the ordinary exchanges for which they are designed, gold 
and silver coins are portable enough. The writer lias car- 
ried across the ocean, incased in a glove finger and borne in 
a vest-pocket, a troy pound of English sovereigns, worth 
about $230, scarcely conscious of their weight, though easily 
reassured of their presence by a touch of the hand. The 
experience of those countries, like France and Germany, in 
which the money has been and is still mostly metallic, has 
not pronounced it onerous on account of its weight ; and, at 
any rate, it is better to accept all the other immense advan- 
tages of gold and silver money, together with some incon- 
venience as to weight, if one chooses to insist on tfcst, than 
to adopt substitutes every way inferior as money, except 
that they are lighter in our purses. They are unfortunately 
" lighter " in other respects also. 

Moreover, gold and silver differ from jewels and most ether 
precious things, in that masses of them are divisible, without 
any loss of value, into pieces of any required size. The 
aggregate of pieces is worth as much as the mass, and the 
mass as much as the pieces. This is a great advantage in 
money, because for the convenience of business, a consider- 
able variety of coins is required, and the proper proportion 
of each kind is a matter of trial, and if .nv kind be minted 
in excess of the demand nothing more is required than to 



318 POLITICAL ECONOMY. 

remint in other denominations, and the whole value is thus 
saved to the country in the most convenient form. 

Then, gold and silver are easily imjiressible by any stamp 
which the government chooses to put upon them. Indeed in 
their natural state they are too soft to retain long the impress 
of the die. Accordingly, for coinage purposes they are al- 
loyed with another metal, chiefly copper, since bj 7 a chemical 
law, whenever two metals are mixed together, the compound 
is harder than cither of the two ingredients. Most of the 
nations now use in their gold and silver coins, one-tenth 
alloy, but England still adheres to her ancient rule of one- 
twelfth only. So compounded, coins receive readily and 
retain for a long time with sharp distinctness the legend and 
other devices chosen for them to bear. In monarchical coun- 
tries, the head of the reigning sovereign is usually stamped 
upon the coins ; in all countries, national emblems of some 
sort ; quite recently, some of our coins have been made to 
bear the appropriate legend "In God we trust;" so that, 
patriotic and even religious associations are connected with 
the current money. Although the alloy hardens the coins, 
yet after long usage they will lose part of their weight by 
abrasion, and governments usually indicate a short weight, 
after coming to which the coins are no longer legal tender. 
Thus an English sovereign weighs five pennyweights 8£|-| 
grains, containing 113^^-3 grains of fine gold, and when it 
falls below five pennj^weights two and three-quarters grains, 
it loses its legal tender character. Still, the abrasion is not 
very considerable in any one year. The Director of the 
United States Mint, in his Report for 1862, gave the results 
of some careful experiments made at the Mint to ascertain 
the yearly loss of coins by the ordinary wear and tear of 
circulation. The result of actual weighings and cautious 
estimates was, that the average yearly waste by wear on all 
the coins then in use in this country did not exceed one part 
in 2,400. The cost, therefore, of maintaining a metallic 
circulation is by no means so great as it has been usually 



MONET. 349 

represented. An instrument in constant use that requires 
only a4 *ft of its value for its yearly repair, and performs 
well the most delicate and important functions, is a cheap 
aud durable instrument. 

Lastly, geld and silver, when coined into money, are ob- 
jects of great beauty. This is no slight recommendation of 
these metals for the money of the world. They are clean. 
They are beautiful. People like to see them, and to handle 
them, and to have them. Their perfectly circular form, the 
device covering the whole piece, the milled and fluted edges, 
the patriotic emblem whatever it be, the religious or other 
legend, and their bright color, are all elements in their beauty. 
The e'ducating power over the young of a good coinage well 
kept up, aesthetically, historically, and commercially, is a 
matter of consequence to any country. A whole people 
handling constantly such money cannot fail to receive a 
wholesome development thereby. The new German coinage, 
in contrast with the old money of the German States, fur- 
nishes an illustration of all this. The new German coins 
from highest to lowest are very beautiful, and have already 
tended, aud will tend more and more, to a true German 
nationality. 

From these three main reasons we conclude that gold and 
silver make the best money. 

14. Silver is much inferior to gold as a metal for money, 
fur the reason that it is less steady in value ; and its value is 
less stead}- because it is subject to greater changes in its Sup- 
ply, and greater variations in its Demand. The annual silver 
pioduct of the world doubled in the third quarter of this 
century, rising from an average of $40,000,000, 1851-01, 
to 880,000,000 in 1875. In U~G, Nevada alone yielded 
$40,000,000, as much as the world yielded twenty years before. 
Then, too. public opinion does not hold to silver as it does to 
gold for a standard of values. The action of England in 
181G, of the United States in 1853, of Germany in 1871, 
of Scandinavia in 1874, and of the Latin Union in 1870, in 



350 POLITICAL ECONOMY. 

legally making gold the sole standard of services and silver 
subsidiary to that, of course affected more or less the demand 
for silver, and thus varied its value. The average price of 
silver in gold from 1833 to 1874 in the London market was 
just about 60 pence per ounce, never falling below 58|, and 
never rising to 63. At 60 pence per ounce (444 grains pure 
silver, standard English silver being .925 fine) the ratio of 
gold to silver is 1 to 15.716. Between May, 1875, and July, 
1876, the price in that market (which is the bullion market of 
the world) dropped to 47 pence per ounce, a fall of 21%, 
and a ratio of gold to silver of 1 to 20. The price gradu- 
ally rose again to about 53 pence per ounce, and remained 
there till 1882. Such fluctuations as these, however unusual 
aud unlikely to recur, unfit silver to be the standard in a 
great commercial country, and equally unfit it to be a co- 
standard with gold, but do not interfere with its usefulness 
in subsidiary coins ; and consequently, the action of the 
United States in 1877, in trying again to make silver a co- 
standard with gold, seems to have been unwise, and is likely 
to manifest itself as unwise sooner or later. 

15. A money inferior in general value will, so long as it cir- 
cidates at all, drive a superior money out of the circulation. 
The only exception to this is found in token-coins, and in 
subsidiary silver so far as that has the foA;e?i-quality, that is, 
so far as its nominal is above its bidlion value. These are 
only designed for the smaller exchanges, and are legal tender 
only for small sums, and are acceptable only on local and 
conventional grounds. The exception aside, the principle is 
a fundamental law of finance and has been illustrated over 
and over again in every age and nation. It is as solid as 
the substance of truth can make it, though it looks at first 
sight like a paradox. We naturally think that what is ex- 
cellent tends rather to displace what is inferior, but with 
money the exact reverse is the law, and the perfect coin of 
full weight, instead of driving out the light and the debased 
pieces, is always itself driven out of the circulation by them, 



MO NET. 351 

The reason is obvious from the nature of money. Money 
is merely an instrument of exchange, and nobody wants it 
except to buy with, and so long as the government and the 
community treat light coin and full coin as of equal value, 
receiving them indifferently in payment of debts and of 
taxes, it is clear that nobody will give in payment of <'.ebts 
and of taxes that which is really worth more so long as that 
which is really worth less will go just as far. The inferior 
pieces will abide in a market where they will fetch just as 
much as the superior pieces, while the superior pieces will 
take on a form or migrate to a place in which some advan- 
tage can be gained from their superiority. Thrown into the 
crucible, or exported in commerce, this superiority immedi- 
ately manifests itself ; and therefore into the crucible or into 
the channels of foreign trade it might be confidently pre- 
dicted beforehand that such mone} r would be thrown, and 
all experience testifies with one voice that exactly those are 
the destinations of such money. 

Aristophanes, the Greek comic poet, in the 5th century 
before Christ, seems to have been the first writer who noticed 
that good coins of full weight are apt to be crowded out 
of the circulation by the lighter and poorer pieces, and he, 
mistaking the cause of this, satirized his countrymen unmer- 
cifully for preferring bad coins to good, and demagogues, 
like Cleon, to honorable citizens for rulers. The following 
are the verses : — 

"Oftentimes have we reflected on a similar abuse, 
In the choice of men for office, and of coins for common use; 
For your old and standard pieces, valued and approved and tried, 
Here among the Grecian nations, and in all the world beside, 
Recognized in every realm for trusty stamp and pure assay, 
Are rejected and abandoned for the trash of yesterday; 
For a vile, adulterate issue, drossy, counterfeit, and base, 
Which tbe traffic of the city passes current in their place! 
And tlic men that stood for office, noted for acknowledged worth, 
And for manly deeds of honor, and for honorable birth; 
Trained in exercise and art, in Bacred dances and in song, 
All are ousted and supplanted by a base, ignoble throng; 



352 POLITICAL ECONOMY. 

Paltry stamp and vulgar metal raise them to command and place, 
Brazen counterfeit pretenders, scoundrels of a scoundrel race, 
Whom the state in former ages scarce would have allowed to stand 
At the sacrifice of outcasts, as the scapegoats of the land." x 

Sir Thomas Greshani, financier of Queen Elizabeth and 
founder of the Royal Exchange and of Gresham College in 
London, was the first to explain fully what Aristophanes had 
noticed, and what may hence properly be called Gresham' a 
law. Let us give two or three illustrations of it. The city 
of Amsterdam founded its famous bank in 1609, because 
the clipped and worn foreign coins then circulating in that 
great mart of trade, drove out completely the good money 
which the mint of the city constantly poured in. This was 
a bank of deposit only ; it took in all the old coins at their 
bullion value, and had them reminted at full weight ; it gave 
the depositors credit on its books in the terms of the new 
money for all they brought in ; it adjusted accounts between 
merchants and others by mere transfers on its books ; and 
the city required all debts due in Amsterdam to be paid in 
the new bank- money, and thus took away all uncertainty 
from bills of exchange drawn on Amsterdam, which were 
previously liable to be paid in the worn coin, and were there- 
fore sometimes at as much as 10 % discount in other cities ; 
thr3 brought these bills at once up to par and kept them 
there, and thus made it for the interest and convenience of 
every business man in Amsterdam to have these simple deal- 
ings with the bank, which in turn enjoyed unlimited credit 
in the commercial world for nearly two hundred years. 

The great English recoinage of 1896 was compelled by 
similar causes. Macaulay describes it graphically in his 
twenty-first chapter. The old silver coins were stamped by 
the hammer ; few of them were perfectly circular ; the edges 
were neither milled nor fluted ; ""he superscription was not 
so near the edge as that the letters were impaired by a little 
clipping ; it was easy to pare off a pennyworth or two, and 

1 Translated by Hookham Frere. 



MONET. 353 

then pass the coius along ; it was profitable to do it, and in 
vain that Elizabeth enacted that the clipper must sniffer the 
penalties of high treason ; nearly all the coin of the realm 
became mutilated, and about 1GG0 a new process of coinage 
was brought in. A mill worked by horses fabricated the 
new coins on better principles. They were exactly round, 
and the edges were inscribed with a legend, and they were 
all of just and equal weight. They were thrown out to pa33 
current with the hammered money, and At seems to have 
been expected that they would soon come to displace it. But 
they did not. Both were received at first without distinction 
by the individual traders and by the public tax-gatherers. 
But the milled money soon came to be scarce, and the old 
mone}- grew constantly worse. The lighter the old coins 
became, the scarcer became the new ones ; for who would 
pay two ounces of silver when one ounce was legal tender? 
The new money was melted, was exported, was hoarded, 
but circulate it would not. At length the lightest pieces 
began to be refused by some people, and other people de- 
manded that their silver should be paid to them by weight 
and not by tale, and there was wrangling over every counter, 
and a dispute at every settlement, and the coin was really 
so diverse in its value that there was no longer any measure 
of value in the kingdom ; business was in utmost confusion, 
society was by the ears, poor people were unmercifully 
fleeced, and shrewd ones grew enormously rich ; and the 
Jacobites secretly exulted in the hope of being able to avail 
themselves of the prevailing discontent to overthrow the 
scarcely established revolutionary government of William and 
Mary ; when, by the joint counsels of two such philosophers 
as Locke and Newton, and two such statesmen as Somers 
and Montague, the government took the bold resolution of 
reeoining all the silver of the kingdom. An early day wag 
fixed by Parliament, after which no clipped money could 
pass except in payments to government, and a later day 
after which it could not pass at all. 



354 POLITICAL ECONOMY. 

16. Some steps have already been taken towards unifying 
the coinage of the leading commercial nations. Since alloy 
is of no consequence in coins so far as value is concerned, 
which depends wholly on the weight and fineness of the pre- 
cious metal, if the nations could agree as to the fineness of 
the gold in their unit-coins, and then bring the weights of 
these into easy numerical relations with each other, the coins 
of each nation might bear the names and emblems preferred 
by each, but there would be practically a universal coinage, 
and the pieces respectively might be legal tender in each 
nation. Except England, the leading nations have already 
adopted the standard nine-tenths fine for their gold coins 
The French have taken much pains to make their franc- 
system universal, and have had some success as towards that 
end. They want their five-franc gold piece, weighing 1,G12.9 
milligrams, to be the international unit ; and have persuaded 
Belgium, Switzerland, Italy, Spain, Greece, Roumania, and 
Austro-Hungary in part, to adopt it. The last mentioned 
began in 1870 to coin gold pieces of eight and four florins, 
the same in weight and fineness ao the French twenty and 
ten franc pieces respectively ; and uecreed in 1873, that 
foreign gold pieces of the French system be accepted in 
Austro-Hungary in the ratio of two and one-half francs to 
the florin. If this system is to become international, Brit- 
ish, German, and American gold will have to be recoined, 
and the British standard of eleven-twelfths fine be changed 
to nine-tenths fine. If our gold dollar were lowered 3.5 %, 
and the British sovereign lowered .88 °f , very simple ratios 
would obtain between the moneys of the United States, Great 
Britain, and the Latin-Union countries. Five dollars would 
equal one pound and each would equal twenty-five francs ; 
also, of course, one dollar would equal five francs and four 
shillings respectively. If the United States should make its 
gold dollar the equal of five French francs, it would there- 
after circulate wherever the French napoleon now circulates 
(virtually everywhere), and tend powerfully to make the 



MONEY. 355 

dollar the future universal denomination of value, as it is 
already in many countries both in Occident and Orient. 1 
The objections to this general plan, are (1) the ugly fraction 
in the metrical unit of weight ; (2) England's preference of 
her old standard ; (8) the new, independent coinage of Ger- 
many ; (4) such a body of gold would have to be recoined ; 
and (5) the system is not decimal throughout, though the 
multiples of the unit would be divisible by five, the napoleon 
of twenty francs not being decimally related to the franc. 

Mr. E. B. Elliott's plan is similar, simpler, and more 
metrical : Let Great Britain coin ^ fine and increase the 
weight of the sovereign from 7.3223-J- to 7.5 grams fine, let 
the French increase the weight of the napoleon from 5. 8064 -|- 
to 6 grams flue, and let the Uhited States reduce the weight 
of the dollar from 1.5046 -f- to 1.5 grams fine, and then 
their weights, both fine and standard, would all be strictly 
metrical and bear simple relations to each other. The 
following equivalents would obtain, namely, 4 pounds = 20 
dollars = 100 francs. Each of these would weigh 30 grams 
fine gold, or 33^ grams standard gold. Also, 1 dollar = 5 
francs = 50 pence, each weighing H grams fine, or 1§ 
grams standard. Also 1 pound = 5 dollars, each 7^ grams 
fine, 8 a grams standard. 

The new German Empire adopted bodily the metric sys- 
tem from France, but in developing ajbout the same time its 
new coinage, it avoided the French unit of money, and thus 
probably postponed the exact unification of the money of 
the commercial world. The German unit is the mark, and 
the principal coiu is the 20-mark piece, which contains 
7.168459 grams fine gold; the English sovereign contain:} 
7.3224 grams fine, and the French 2 5 -franc piece is to con- 
tain 7.2581 grams fine; and if these three could be brought 
together, and the American dollar be made equal to 5 francs, 
an international coinage woidd be substantially secured. 
The German mark is subdivided into 100 pfennige, as the 

1 Compare Jevous's Mechanism of Exchange, p. 179. 



356 POLITICAL ECONOMY. 

French franc into 100 centimes. An English shilling equals 
24.33 of our standard cents, and two shillings English are 
very nearly the same as the new Austrian florin. 

17. We have defined "Money" as a current and legal 
measure of Services. So far, we have treated only of coin- 
money ; as this is the only money' that stands in its own 
right as a commodity, and the only money that can give 
birth to the denominations of value, such as dollars, marks, 
and francs. What is a dollar? A dollar is twenty-five and 
four-fifths grains of a metal compound coined, of which 
nine parts are pure gold, and one part a hardening alloy. 
It is a definite quantity of a definite thing. It is a visible, 
tangible commodity. Government is competent, if it pleases, 
to alter the quantity of gold that shall make a dollar, though 
the people will quickly readjust the prices of services to a 
changed dollar ; it is competent even to make a dollar out 
of silver, though it is not competent to cause both dollars 
to circulate as such at the same time ; but it is not practically 
competent to maize a dollar out of any tiling else than gold or 
silver. From the way in which money originates, the mate- 
rial of money must be a valuable commodity ; and no civil- 
ized people now tolerate any other commodity in this relation 
than gold or silver. Such a commodity, becoming in the 
way already explained an actual medium passing from hand 
to hand in exchanges,. impresses its name on the minds of 
men as an ideal measure of services, which measure they 
can use, and do constantly use, without handling at the time 
the commodity itself. But these ideal-dollars, these denomi- 
nation-dollars, need to be kept in check by a constant 
recurrence to actual, palpable thing-dollars. The denomina- 
tion only comes into existence in connection with the use of 
the thing, cannot possibly exist independently of it, and 
needs constantly to be reduced to it (as it were by actual 
contact) in order to be useful as a measure. Just as men 
talk about inches, and calculate by inches, in thousands of 
cases in which no actual inch is used as a measure, and, in 



MONET. 357 

every case of doubt, dispute, or difficulty, have recourse 
to the actual iuch, and thus the ideal inch is kept steady in 
the minds of men by frequent reference to the outward 
standard ; so the mental measure of services, which meu 
insensibly acquire from the use of the objective measure, 
needs to be kept true by actual and frequent contact with 
that measure. 

Bat besides the thing-dollar and its denomination, which 
always go together like a man and his shadow, there is one 
other kind of money, — the promise-dollar. We must now 
attend to this. What is a dollar bill? How does it read? 
It is a promise of the issuer to pay to bearer one dollar, that 
is, this definite quantity of a precious metal. There is no 
mystery here. A dollar is a tangible commodity. A dollar 
bill is a promise to give this commodity to bearer. The 
difference between them is the same in kind as that between 
a bushel of corn and a man's promise to his poor neighbor 
to give him a bushel. It depends on the man, on his ability 
and character, how much this promise is worth ; and so it 
depends on the issuer, on his ability and character, how 
much the promise-dollar is worth. The issuer may be of 
such standing as to be able to secure for his promises that 
they become "a current and legal measure of services;" 
if so, they become money under the definition. There is, 
then, such a thing as paper money, although many high 
authorities are reluctant to concede that any mere promises 
can be money at all. For ourselves, we cannot refuse the 
courtesy of the term "money" to paper promises, which 
our country, however unwisely, makes a legal-tender for 
debts. The essential characteristic of money is its posses- 
sion of a generalized purchasing-power. Whatever circu- 
lates among all classes of the people as a medium in their 
exchanges is money under the definition. Still, there are 
but two kinds of it. Money is always either an intermediate 
and equivalent merchandise (coin) or promises to pay thia 
(paper money). 



358 POLITICAL ECONOMY. 

But not all promises to pay coin are money, because not 
all have the ' ' current and legal ' ' qualities which alone make 
any thing money. Paper money is always credit ; but not 
all credits are money. Ordinary notes of hand, cheques, 
drafts, bills of exchange, and so on, are not money under 
the definition. This is a distinction recognized in common 
language, and science has no motive to disturb it. The peo- 
ple know the difference between paper money and other 
credits. One man may receive and pay out cheques in ordi- 
nary exchanges, but all his neighbors do not, and they know 
the difference : cheques are not money. The people know 
too, what is the weak point in paper money. It is credit- 
money. It may be more convenient than coin money ; its 
value, that is to say, its purchasing-power, ma}' be equal to 
that of coin money ; it may even in some circumstances bear 
a premium over coin money ; but all this does not alter the 
fact that there is in it an unlucky element, an unstable 
element, an element which, as men are, is liable to some 
suspicion, the element, namely, of a present promise to be 
fulfilled in future. Paper money walks by faith, and not by 
sight. It is the sign, and not the thing signified. It is the 
representative of something, and not that something itself. 
It is a promise to pay, and not the pay itself. It is a- credit, 
and not a quittance. And what makes this very certain is, 
that all paper money knows it to be true about itself. It 
bears this truth stamped on its very face. It does not even 
profess to stand on its own bottom, but leans consciously 
and conspicuously on some solid support. The French 
assignats promised to redeem themselves in land ; the conti- 
nental bills of the old American Congress were all to be paid 
in Spinish milled dollars ; the bills of the Bank of England 
profess to be and are, redeemable in gold ; the present legal- 
tender notes of the United States, and the current national 
bank bills, are all in terms promises to pay to bearer so 
many legal dollars of the United States, that is, so manv 
times 25-§ grains of gold standard fine. 



MONET. 359 

18. It follows from all this, that paper money is made up 
ouly of promises made by somebody to pay to Homebody 
else a definite weight of coined metal. All civilized countries 
now make a certain weight of gold or silver of a known de- 
gree of fineness their acknowledged standard of value ; and 
accordingly, paper money can only promise to pay specie, 
since specie is the only thing that can be meant, w'.ieu the 
promise is to pay sovereigns, dollars, marks, francs. Specie 
is indeed a commodity, like other commodities, and owes its 
value to precisely the same principles as they owe theirs, but 
thru it is the onby commodity that is characterized by the 
denominations of money ; and therefore, all attempts to 
make a paper money promise to pay land, wheat, cotton, 
mercantile bills, or any other valuable thing but specie, have 
alwa}-s failed iu the past, and always must fail, because they 
involve a direct contradiction in terms. Now, paper moncj' 
as thus defined and made definite to the mind is of two 
kinds, namely, convertible and inconvertible. A convertible 
paper money consists of promises that are always kept by 
the issuer according to their terms, that is to say, that are 
paid in specie at the will of the holder. An inconvertible 
paper money is only another name for unfulfilled promises. 
Is it any wonder, that unfulfilled promises to pay invariably 
become less valuable than that which they promise to pay? 
The}' are valuable to start with, else they could not become 
money, and they are valuable because men suppose the 
promise will be kept : tkey are commonly valueless to end 
with, because" men lose faith in the fulfilment of a promise 
long delayed. This is the simple secret of the depreciation 
of inconvertible money so soon as the amount of it passes 
a certain limit, and so soon as a certain time has elapsed 
after its issue and the issuer shows no signs of keeping his 
word. As money is only a measure of Services, and as 
possible Services are limited at an}' one time and place, and 
consequently as the amount of money needed for healthful 
business is limited also, a steadily convertible paper money, 



360 POLITICAL ECONOMY. 

provided the limit of quantity be not overpassed, will con- 
stitute a tolerable money. But this limit of quantity is apt 
to be overpassed, whether the paper money be convertible 
or inconvertible, and especially in the latter case, because 
the temptation to issue promises to pay in excess of the 
means of promptly redeeming them always besets the issuer 
on account of -the gain to him in such issue at least for a 
time. This temptation has been yielded to first or last by 
every nation, and probably by every corporation, that has 
ever issued paper money; and a sufficient yielding will 
surely bring in the "good times" of the boy, who boasted 
that he had sold his hen for one hundred dollars and taken 
his pay in two fifty-dollar puppies. 

19. The Bank of England has been on the whole the best 
managed, and its notes have gained the most confidence and 
the widest circulation, of all the bodies that have ever issued 
paper money. Let us take the best specimen of its kind, 
and if we find a comparative failure even here, we may know 
what to expect of the genus as a whole. We shall look at 
that Bank now solely as a Bank of Issue, because its wider 
and more complex functions as a Bank of Discount cannot 
be understood until we have studied the subject of Credit. 
"The Governor and Company of the Bank of England" 
are an association of capitalists incorporated by Parliament 
in 1 694, on the original condition that the Stockholders 
should loan to the Government, then pressed for money, 
£1,200,000, for which the lenders were to receive 8% a 
year as interest, and also £4,000 a year for the manage- 
ment of the bank, whose capital stock was just this debt 
due from the government, on the strength of which the bank 
was authorized to issue an equivalent amount of bills to cir- 
culate as money, but which, however, at first could only pass 
from hand to hand by successive indorsements. The capital 
stock was of no use so far as redeeming these bills was con- 
cerned, the stockholders must furnish other money for that 
purpose besides what they bad loaned to the State, but tbe 



MONET. 3G1 

ownership of so much of the public debt made the bank re- 
spectable, and tended to give credit to its bills, which at first 
were paid promptly in coin on demand, and thus the Bank 
by increasing the volume of money and by showing confi- 
dence iu the stability of the State strengthened the revolu- 
tionary position of William and Mary, and consequently 
the Whigs were the friends and the Jacobites the enemies 
of the Bank. It was felt that if James II. should regain 
Ihe throne, no pound of the loan would ever be paid Lack. 
"■ So closely," says Macaulay, " was the interest of the bank 
bound up with the interest of the government, that the greater 
the public danger, the more ready was the bank to come to the 
rescue." As already related under the last general proposi- 
tion, the silver coins of the realm were at this time much 
worn and clipped ; the bank had received them at their 
nominal value; but after the recoinage began in 1G96, it 
was obliged to redeem its bills in new coin of full weight, 
that is, for perhaps 7 ounces of silver received, it was now 
bound to pay 12. Consequently its enemies made a run 
upon the bank by collecting its notes to a large amount and 
presenting them for redemption. The bank was obliged to 
suspend specie payments, at first partially, and then gener- 
ally. In February, 1697, its notes were 24% below par. 

A new charter then extended the term and doubled the 
capital stock of the Bank, one-fifth of the subscriptions to 
which increase toas receivable in the old notes of the bank. 
This device bought up all the notes to par. This second 
charter provided, that, if the bank thereafter did not pay its 
notes on demand, they might be presented at the Exchequer 
and be redeemed out of the annuity due to the bank. In 
1709, the term was again extended, the capital stock again 
doubled, that is, the bank loaned as much more to the State, 
and the interest on the whole debt was reduced to G% ; while 
each increase of the debt carried along with it the privilege 
to the bank of increasing by so much the issue of its bills. 
This is a vicious principle ; because there is no relation be- 



362 POLITICAL ECONOMY. 

tween the proper amount of money in any country and the 
size of its national debt. Moreover, the national debt back 
of the bills has had very little to do in making them a toler- 
able money, but the solid cash back of them with which tc 
convert them on demand has put into them their goodce33 
as paper money. In 1720, and again in 1745 when the 
Young Pretender made the last rally of the Jacobites, there 
were severe runs upon the bank ; on both occasions, in 
order to gain time, notes were paid in shillings and six- 
pences. Best friends were also accommodated first, who 
are said to have returned the bags of money as fast as they 
received them. The practice of indorsing the notes became 
gradually disused, though the law at first did not follow the 
innovation. 

Till 1759 no notes less than £20 were issued by the bank, 
but thereafter £15 and £10 notes began to go out. The 
bank kept advancing various sums to government on various 
conditions, mostly, however, at 3%, till 1782, when the debt 
stood about where it does now, £11,642,000. Only between 
1694 and 1711 were the issues of the bank limited by law to 
the amount of the debt owed to it by the nation ; between 
1711 and 1844 there was no limitation on the amount of bills, 
only of course the bank was required to pay its promises in 
coin on demand ; but the war of the French Revolution made 
such demands upon the bank for money, that, just 100 years 
after the first suspension, that is, in 1797, the bank sus- 
pended specie payments, and did not resume them till 1821. 
Government and the business men of London did their best 
to hold up the credit of the notes during the suspension, but 
they were not made a legal tender for debts. Government 
received them at par for taxes, and provided that business 
payments in notes would be held as payments in cash if 
offered and accepted as such. Debtors, having tendered 
bank notes, which the creditor refused, had certain privi- 
leges before the law which other debtors had not. The 
notes therefore had a quasi legalization, but not a forced 



MONEY. 363 

circulation. The bank was also authorized at this time 
to issue £5, £2, and £1 notes. Cautiously issued at first, 
bank paper continued at par for several years after the 
suspension, which proves that when government possesses 
the monopoly of issuing paper money, and carefully limits 
iis quantity, and both receives and pays it out at par, it may 
keep an inconvertible paper at par, or even by sufficiently 
limiting its quantity carry i± above par. But this truth does 
not make an inconvertible paper a good mone}', because it 
does not make it a self-regulating mouey, and because gov- 
ernment is not wise and linn enough to fix and maintain a 
proper limit. Though Parliament intended in successive acts 
to confirm to the Bank of Eugland the monopoly of banking by 
enacting that no partnership of more than six persons should 
take up money on its own bills, yet the common law assured 
to private persons and smaller partnerships the right to do 
this ; and private bankers multiplied after the suspension, 
since the}' were allowed to pay their notes in Bank of Eng- 
land notes. Thus the quantity of paper money gradually 
increased till in August, 1813, the Bank of England notes 
were at oO c / discount in gold. 

In 1829, all notes whatsoever for less than £5 were for- 
bidden to be circulated in Eugland. In 1844 Sir Robert 
Peel gave the bank through Parliament a new constitution, 
under which it is still managed, which made the Issue depart- 
ment of the bank quite distinct from the Loaning depart- 
ment, and restricted the issue of bills to £15,000,000 on 
the strength of securities (most of which is the government 
debt) , and for all issues beyond this amount it must have 
£ for £ of specie in its coffers. Thrice, however, the gov- 
ernment has authorized the bank to issue more bills than 
this provision allows on temporary securities, namely, in 
1847, 1857, and in 18GG. The average amount of notes 
issued under these conditions is about £30,000,000, iiulud- 
ing the reserve of notes held by the Loaning department in 
lieu of gold. No note once returned to the bank is ever 



364 POLITICAL ECONOMY. 

re-issued ; and no note presented for payment (not even if 
counterfeited) has been dishonored since 1821. 

20. An irredeemable paper money, or an ostensible paper 
money that pledges payment in any thing else than gold or 
silver, only needs to be described to be condemned. John 
Law, a shrewd Scotchman, born in Edinburgh in 1671 , son 
of a goldsmith, with an innate talent for finance and well- 
educated, was the first to give scientific form and color to 
the false theory that paper money represents commodities 
of some sort, and may be issued to an amount equal to the 
value of these. " Any goods that have the qualities neces- 
sary in money, may be made money equal to their value. 
Five ounces of gold is equcd in value to £20, and may be 
made money to that value ; an acre of land is equal to £20, 
and may be made money equal to that value, for it has all 
the qualities necessary in money." The fallacy in these 
words of Law is patent enough to any one who will stop 
to think a moment about the nature of Money. Because 
land, for example, has value, it does not follow that it has 
" cdl the qualities necessary in money ;" and, as a matter 
of fact, it lacks the precise quality necessary in money, 
because, though it has purchasing-power, it cannot from its 
very form and nature become a generalized and current pur- 
chasing-power. Money is indeed a valuable thing, but that 
does not prove that all valuable things can be money. With 
this radical vice of Law's view was wrapped up another, 
namely, that there may be in any country as much paper 
money as the sum of the values of all its valuable things. 
Now, we have learned perfectly, what escaped the acute 
intellect of John Law, that Money is only a valuable measure 
of all other salable Services ; and therefore, that the amount 
of it that can be made useful at any one time and place ia 
strictly limited, and bears very little relation to the sum of 
the values present at that time and place. 

Scotland fought shy of Law's idea when he published it 
there in 1705, and so did Paris the first time he visited thai 



MONET. 365 

jity, in which and in other cities he gambled successfully 
and talked finance to princes and statesmen fascinatingly ; 
but when he returned to Paris in 1715 with his ill-gotten 
fortune, he gained the ear of the Regent Duke of Orleans, 
who permitted him to found a bank there, in which were 
incorporated some sound principles of monetary science as 
well as the prime fallacy of his system. The bank bought 
a portion of the State Debt, just as the Bank of England 
had done, and laid in also a fair stock of coin, and there- 
upon issued a paper money. For a couple of years, or so, 
the bank surpassed all hopes, for Law had touched a spring 
till then but little known in France, the potent spring of 
Credit. .But his whole thought, meditated on for years, 
could not be expressed through a private bank. The State 
should be a banker ; it should collect all its revenues into 
a central bank, and attract the money of individuals to it as 
deposits ; besides, the State has public property of vast 
value, on the strength of which paper money can be emitted 
and made legal tender ; and thus the State, instead of bor- 
rowing, should lend to all on easy terms, and the profits thus 
accruing would lessen or abolish taxes. Nor was this all. 
The State should also be a merchant; the whole nation 
should form a commercial company, a body of traders, 
whose common treasury should be the State bank. Com- 
merce by individuals creates great wealth ; why should not 
the organized commerce of a State make everybody rich? 
The discounts of the bank, and the profits of the trade, 
would surely provide for the public service without taxation. 
These vast ideas were actually carried out. Law's bank 
hecame the Royal Bank, issuing a paper money guaranteed 
by the State and resting back upon the value of all national 
property. The money was receivable in taxes, nominally 
redeemable in coin, and made a legal tender. It actually 
bore at one time 5 and 10 % premium over gold and 
silver. People were anxious to exchange their coin for 
botes. Meanwhile a commercial company was formed in 



,366 POLITICAL ECONOMY. 

connection with the bank, to which the State ceded at first 
the monopoly of the commerce of Louisiana and of the 
Canada beaver trade for twenty-five years, and the soil of 
Louisiana forever ; under the auspices of which New Or- 
leans was founded, and named from the Regent, the patron 
of the grand system ; and in succession, the monopoly of 
tobaccos, the rights of the Senegal Company, of the East 
India Company, of the China Company, and of the Barbary 
Company ; until, having almost all the commerce of France 
outside of Europe in its hands, it entitled itself the Company 
of the Indies. Its shares rose from a par value of 500 
francs, to 10,000 francs, more than forty times their value 
in specie at their first emission. To support such- specula- 
tions, which completely turned the heads of all classes of 
the people, the amount of paper money reached at last the 
sum of 3,071,000,000 francs, 833,000,000 more than had 
been legally authorized to be emitted. The collapse of this 
most gigantic financial bubble of history was terrific. Before 
the close of 1720, the shares of the Company could be 
bought for a louis d'or, and the paper money became worth- 
less. 1 

The utter failure of Law's paper money, which ran its 
course in about 4 years, did not exorcise from the French 
mind the evil spirit that entered into it in 1715. Again at 
the close of that century France tested on a grand scale the 
merits of paper money issued on the principle that money 
represents commodities. As the Great Revolution went for- 
ward and a scarcity of money was publicly felt, the National 
Assembly issued in 1790 under the name of "assignats" 
a paper money whose promises, though couched in terms of 
fiancs, were really to be redeemed in lands; for they were 
receivable in payment for any of those lands of the Church 
which had just been confiscated to the State at my public 

1 Martin's Decline of the Monarchy, chap, i; Macleod's Theory and Practice ol 
Banking, chap, xi; Bancioft's Un'ted States, chap, xxiii; New Am. Cyclo., AiU 
John Law. 



MOXEY. 307 

Bale of them. The first emission, but not the rest, bore 
interest. That issue was 400,000,000 francs — about one- 
fifth the value of the confiscated lands. In September, 800.- 
000,000 more were authorized, Talleyrand opposing ar.;l 
Mirabean strongly urging these additional issues. " It is in 
vain," said Mirabeau, "to compare assignats, secured on 
1 he solid basis of these domains, to an ordinary paper cur- 
rency possessing a forced circulation. The}' represent real 
property, the most secure of all possessions, the land on 
which we tread." Nevertheless, and though all assignats 
were legal-tender, they drooped. The government in alarm, 
while issuing on the one hand enormous quantities of the 
paper to meet the vast expenses of the Revolution, which 
quantities were swelled by skilful counterfeiters in the pris- 
ons and elsewhere, took strong measures on the other to prop 
up their market value ; the use of coin was prohibited ; a 
maximum price in assignats for every thing was established 
by law ; heavy penalties and at last death were decreed against 
those who refused to receive them at par ; but it was all in 
vain. "They sink now," says Carlyle, "with an alacrity 
beyond parallel." In June, 1793, the assignats had fallen 
to 33, and in August to 1G °f . Renewed confiscations kept 
the estimated value of the public domains far in advance 
of the par value of the assignats based upon them ; but this 
had no tendency to prevent the depreciation of the assignats. 
because money is a medium of exchange, and its proper 
amount has no relation to the estimated value of any com- 
modities at all. In February, 17 ( J6, the assignats legally 
issued had amounted to 45,500,000,000 francs, and had 
fallen to one two-huudred-and-sixty-fifth part of their nomi- 
nal value, that is, to f °f . The government then offered 
to redeem them at 30 for 1 in " mandats," which entitled 
the holder to take immediate possession at their estimated 
value of any of the lands pledged by the assignats. This 
device took up some of the old paper, but proved futile to 
recover for it its value ; and in less than six months a Decree 



368 POLITICAL ECONOMY. 

ended the whole matter by permitting any one to do business 
in any money he chose ; and traffic, which had practically 
ceased under the paper money, revived again at the sight 
of the coin, which of course in accordance with Gresham's 
law had been wholly out of circulation. Thus the assignats 
had a course of about 6 years. The distress and consterna- 
tion into which a country falls when its current Measure of 
Sen ices is disturbed and destroyed, as it was in this case, 
is ].ast all powers of description. The prisons and the 
guillotine did not compare with the assignats in causing suf- 
fering during those six years. This example is significant, 
because it shows the powerlessness of even the strongest and 
most unscrupulous governments to regulate the value of any 
thing. The assignats were depreciating during the very 
months in which Robespierre and the Committee of Public 
Safety were wielding the power of life and death in France 
with terrific energy. They did their utmost to stop the sink- 
ing of the revolutionary paper. But value knows its own 
laws, and follows them, in spite of decrees and penalties. 

21. As a result of this entire discussion, it may be laid 
down with considerable confidence, that the safest and most 
economical, and on the whole the best, money is gold and 
silver coin. There is no need in any commercial country of 
any other moyiey, still less of any other legal-tender. Thi <r 
position does not exclude the freest possible use of cheques, 
drafts, bills of exchange, money-orders through the post- 
office, and any other convenient form of pure credit. These 
are sufficient to prevent for the most part all burdensome 
transfers of coin. The sphere of money and the sphere of 
credit are quite distinct spheres. The functions of money 
are too delicate and too vastly important to be well performed 
by any instrument that is essentially credit. Still, the lead- 
ing nations of the world, including the United States, use 
paper money in part ; and the people of the latter between 
18G2 and 1878 had in effect no other money than irredeem- 
able promises to pay, some of it issued by the national gov- 



MONEY. 369 

eminent directly, and the rest of it by incorporated banks. 
It will doubtless be long before the nations come to disuse 
every form of paper money, because there is much that is 
gainful to some, and more that is attractive to all, about such 
an elastic measure of values ; and each generation easily for- 
gets, even if it ever learns, the enormous losses that have 
hitherto accompanied sooner or later even the most successful 
forms of even convertible paper money. It is more than 
doubtful whether England is any the richer on the whole for 
the issue of Bank of England bills, and it is certain that the 
United States is much the poorer for the attempted use of all 
the manifold forms of paper money that its sanguine people 
have handled first and last. But Political Economy as the 
Science of Sales must have its say about what is the best 
instrument of sales, whether men will hear or forbear. 

22. Whether the money of a nation be coin or paper, or 
both, when once it is in the hands of the people, the govern- 
ment has no right to concern itself with the rate of interest at 
which one person loans this money to another. Many of the 
nations, and most of the States of this Union, have on their 
statute-books what are called Usury Laws, which prohibit 
the lender from taking more than a prescribed rate % for 
the use of the money loaned. The penalty is sometimes the 
forfeiture of the entire interest, and sometimes of the entire 
debt. These laws cannot justify themselves for a moment 
in the light of sound principles of Political Economy. Their 
origin may be explained by a reference to two false views, 
now happily exploded. 

(a) The law of Moses forbade to the Israelites the taking 
from one another any interest on money loaned, but at the 
same time it allowed them to take such interest freely of 
strangers ; the permission in the one case going to show that 
there is nothing in the taking of interest in itself unjust or 
sinful, and the prohibition in the other being re&di'j explain- 
able from the general purpose of the municipal regulations 
of Moses, which was to found an agricultural and not a trad- 



370 POLITICAL ECONOMY. 

ing commonwealth, in which every f amity was to possess land 
that could not be permanently alienated or sold, in which it 
was a great object to maintain the personal independence and 
equality of these families, in which the law for the recovery 
of debts was very summary and effective, lessening the risk 
of losing the principal, and which was to be and was sedu- 
lously separated in its usages from the surrounding nations. 
It has been well understood for a long time that the municipal 
code of Moses was local and peculiar, not necessarily appli- 
cable at all to the circumstances of other States, and in no 
sense binding on the conscience of legislators ; and yet there 
doubtless sprang from the prohibition referred to a prejudice 
against interest, and this prejudice was perhaps deepened in 
the Middle Ages and onwards by the conduct of the Jews 
themselves, who, in addition to their sin of persistently grow- 
ing rich in spite of the endless disabilities laid on them by 
the people of Europe, alwa} T s demanded, in accordance with 
the permission of their great lawgiver, a good rate per centum 
of interest from those strangers to whom they became money- 
lenders. The Jews were everywhere hated, and consequently 
the usury which they practised was hated also. - The funda- 
mental absurdity of forbidding in trading communities the 
taking of interest on sums loaned to a borrower which he was 
at liberty to use for his own profit, deterred the nations from 
going to the length of prohibition, unless it might be in the 
case of the hated Jews. There is a clause of Magna Charta, 
interesting as showing how early the children of Abraham 
became the money-lenders of Europe, to the effect that, 
during the minority of any baron, while his lands are in 
wardship, no debt which he owes to the Jews shall bear any 
interest. 

(b) Governments formerly deemed themselves competent 
to determine and fix the general purchasing-power of their 
own money. Even the Constitution of the United States 
uses this language: "to coin money, regulate the vilue 
thereof and of foreign coins.'" There ras formerly xnd 



MONEY. 371 

there is still to some extent, a curious and ha: mful confusion 
in the public mind in respect to this term, " the value of 
money." In the only proper sense of the term, the value 
of money means its power of purchasing services in general, 
and the value of money is high when a given sum of it will 
purchase much of general services, and low in the contraiy 
case ; and a high or low value of money in this true sense 
depends on a very distinct set of causes from those which 
determine the high or low rate of interest on money loaned ; 
nevertheless, so long as governments supposed that they 
could regulate the former, it is very natural that they should 
also suppose that they could regulate the latter ; and although 
all intelligent governments have given over the idea of being 
able to regulate the general value of the money they furnish 
to the people, many of them still adhere to the notion, equally 
false with the other, that they are able to regulate the loan- 
able value, or the rate of interest, at least to prevent any 
more than their prescribed maximum rate from being taken. 
A few simple considerations will sufficiently condemn all usury 
laws. 

(1) It is at once needless and invidious to deny by law 
to money-lenders, who offer just as honorable and useful ser- 
vices to society as any other class of men, the privilege of 
selling their service for what it will bring in the market, 
while other men in every department of business are allowed 
to exchange their services on the best terms they can make 
without interference or control. Let us see precisely the 
nature of the transaction when one man loans money to 
another. It is a clear case of value. The lender does a 
service to the borrower, and for this service justly demands 
a compensation. The service is this : The lender might 
himself use the money to gratif}- his own desires. It is his 
money ; he may use it, as he pleases, for his own gratifica- 
tion. Or he may himself employ it productively, and, at the 
end of the period, receive back his principal with the custo- 
mary rate of profit. If he surrenders this advantage to the 



372- POLITICAL ECONOMY. 

borrower, if he passes over to him the right to use this money, 
say, for a year, he practises what we call in Political Economy 
abstinence. For this abstinence he has a right to claim a re- 
ward, precisely as the man has a right to claim a reward who 
foregoes working for himself in order to work for an;ther. 
This reward of abstinence is interest. The money-lender 
!:oregoes an advantage. He performs a service for the bor- 
rower ; and, therefore, the right to interest stands on just as 
unassailable ground as the right to wages. Moreover, the 
loanable value of money varies under Supply and Demand 
just like other values ; there are always those who want to 
borrow, and always those who want to lend ; both parties 
must be assumed to know their own minds, and to be equally 
competent to make their own bargains ; it is a case of mutual 
exhange for a mutual benefit, like all other trade ; and the 
current rate of interest is determined at any one time by the 
actual free exchanges between borrowers and lenders. Now 
for any government to try to compel a lender by law to take 
only 6°f when his money is worth 8, is a direct violation of 
the rights of property. It is a forcible and pernicious inter- 
ference with the freedom of contracts. It is based on the 
false premise that the loanable value of money is uniform, 
and that government is competent to determine what it is. 
No value is uniform. And no government is competent to 
determine even the maximum price of money loaned, any 
more than the maximum price of commodities. 

(2) Usury laws are almost uniformly disregarded, both 
by the governments which make them and by the people for 
whom they are made. Indeed, such laws cannot be enforced 
in a commercial community. Common sense is outraged by 
a law which requires a man to part with his property at less 
than the actual value ; and when common sense is agaiuat a 
law, it stands a slim chance of observance. If the legal 
rate be six, and the actual worth be eight, who lends at six ? 
Not the banks. They require deposits of their customers, 
the use of whose money shall make up to them the differ- 



MONEY. 3\ 3 

ence between the legal and the actual rate. The modes of 
evasion are various, but they are adequate and universal. 
Besides, governments themselves have shown a noteworthy 
inconsistency in this matter, which incidentally proves the 
unsoundness of their whole action. While announcing pains 
and penalties to those who take more than a given rate, they 
are careful never to bind themselves down to any given rate. 
Governments are always more or less borrowers, and if usury 
laws are necessary in order to help borrowers in a pinch, there 
ought to be a clause in the organic law of every country, for- 
bidding the government to pay and its lenders to take any 
more than a certain rate per cent. There is no such clause 
in any organic law. Governments wisely follow the natural 
market, and borrow low when they can, and pay high when 
they must. In the last months of Mr. Buchanan's adminis- 
tration, the United States paid 12% on a public loan, and 
could get but little at that. Sauce for the goose is sauce for 
the gander, and if usury laws are good for the citizens, some 
solid reason ought to be rendered why they are not good for 
the government. The truth is, they are not good for either, 
since natural laws are perfectly competent to regulate the 
rate of interest, and do regulate it substantially in spite of 
a factitious, impertinent, and mischief-making interference. 
The rate of interest has little to do with the value of money, 
properly so called. It depends on the proportion between 
the sums of money ready to be loaned in any market, and 
the amount wanted at that time by good borrowers in that 
market. Every rise in the rates tends to lessen the demand 
of borrowers, and every fall to enhance that demand, and 
thus every rise and fall of interest tends to check itself, and 
while the daily and monthly variations of the rate for first- 
class borrowers are very considerable, the general average 
of the rate by years, especially in England, where usury laws 
are mostly 01 wholly swept away, is remarkably uniform. 

(3) If Usury laws were not disregarded, they would lie 
even worse in their effects than they are now. We must 



374 POLITICAL ECONOMY. 

suppose, that their aim is, to aid borrowers, and make it 
easier for them to contract loans. But are borrowers, aa 
a class, any more deserving of the fostering care of gov- 
ernment than are lenders? Even if it could make its in- 
terference effective, as it cannot, is there any reason why 
government, leaving these borrowers to make all other bar- 
gains, sales, and transfers according to their best skill and 
judgment, should rush to then- rescue only when they propose 
to borrow money ? If they are competent to do their other 
business for themselves, government pays their capacity a 
poor compliment in undertaking to help them in the single 
matter of making loans ; and the borrowers in turn have 
reason to pray to be delivered from their friends, since 
they, of all others, would be the men especially injured, if 
all the lenders obeyed the usury laws. Suppose that a bor- 
rower is in great need of a loan, and that for some reason 
his credit is now a little weak. Many men would be willing 
to loan him at 9 °f , which affords a margin for the extra risk, 
but at 6, which we will suppose the maximum allowed by the 
law, he cannot borrow a dollar, because his credit is not quite 
equal to the best. If, therefore, the lenders obey the law, 
he, and such as he, must fail. And because it is unlawful 
to take over 6 °f , he will be obliged to pay those who are 
willing to violate the law 10 or 12, to compensate them for 
the risk and odium of such violation, while, under freedom, 
he could borrow at 8. Moreover, if the loanable value of 
money at the time be actually 9, while the law only allows 
6, many rr.5n will attempt to use their own capital produc- 
tively, who would otherwise loan it, in order to realize the 
high rate ; and this action of theirs still further restricts the 
loan-market and makes it more difficult to borrow. If, then, 
the purpose of government be to aid borrowers, no means 
could be more unskilfully chosen for that end than to pass 
usury laws, since such laws, so far as they are obeyed, have 
necessarily the opposite tendency ; and even when violated 
redound to the disadvantage of borrowers, so long as the 



MONEY. 375 

laws themselves arc popularly regarded as of any legal 01 
moral force. 

In 171G, the Bank of England, as a great loaning institu- 
tion, was exempted from the operation of all usury laws : 
why the bank only, and not other people as well, the Act of 
Parliament does not state. In 18G7, the State of Massa- 
chusetts repealed all its usury laws, though G% is to be 
understood in the absence of special agreement, and the 
result has been entirely satisfactory to all classes of the 
people. Rhode Island had done this previously, and Con- 
necticut did it subsequently, and both have experienced equal 
satisfaction in the result. Other States will soon follow in 
their lead ; and this relic of ignorance and prejudice will pass 
away. Adam Smith left the " Wealth of Nations" disfig- 
ured by the concession that governments might properly 
enough pass usury laws ; but it is gratifying to be able to 
add, that he was convinced of his error in that by Bentham's 
book on usury, and fully acknowledged his conviction in the 
spirit of a genuine lover of truth. We conclude, then, that 
usury laws are needless, since interest, like all other prices, 
will perfectly adjust itself. They are disregarded, siuce 
lenders will loan or withhold their money according to their 
own keen sense of interest. They are pernicious, since they 
infringe the rights of property, and tend to prevent weak 
borrowers from having a fair chance in the market. 

The principal points in this chapter may be gathered up 
into the following brief propositions : — 

1. Money, as a device of men, may be made intelligible to 
men. 

2. Some of the difficulties about money have arisen from 
the variety of objects chosen as money. 

3. Money, as a valuable thing, can only be understood when 
value in general is toell understood. 

4. The inconveniences of barter are so great, that it is not 
strange that some common measure of services was early hit 
upon. 



376 POLITICAL ECONOMY. 

5. This outward measure came naturally to be a medium 
in traffic, and even its name a mental measure in bargains. 

6. Money is discriminated from all other values, in that it 
is a legal and current measure of services. 

7. Changes or falsity in the measure disturb by losses the 
whole world of values. 

8. National experiments, through successive rejections, have 
settled on gold as the best material for money. 

9. Subsidiary coins may be made of silver ; but Gresham's 
law forbids a double standard. 

10. Paper money is only promises to pay coin; promises 
are liable to be broken; therefore, promises are not the best 
money. 

11. Promises are tolerable in proportion as they are kept; 
consequently, some paper money is better than the rest. 

12. Money depreciated from the highest standard raises 
prices, but not of all things equally in amount or uniformly 
in time : it works, therefore, great injustice. 

13. A universal coinage woidd be a vast international 
gain. 

14. The interest of money ougJU to be free to all contracting 



MONEY IN THE UNITED STATES. 37' 



CHAPTER X. 

MONEY IN THE UNITED STATES. 

Tite general doctrine of Money has been fully given m the 
last chapter. It is because the monetary history of the United 
States throws so much fresh light upon old truths, as well 
as brings out into sharp relief certain minor points not yet 
made, that we venture to offer to guide the reader in tracing 
the steps, state and national, the earlier and the more recent, 
that have been taken in this country towards a sound and 
uniform money. No national monetary history is so instruc- 
tive as ours ; almost every possible variety of paper money 
has been tried at one time or another ; the separate Colonies 
issued it, and the confederated Colonics issued it, in mani- 
fold forms ; the States have issued it through banks incor- 
porated by them, and the Nation has issued it by its own 
direct authority as well as through banks chartered by that 
authority; since 1794, the Nation has also minted coins, for 
it has under the Constitution a monopoly of the coinage ; 
between 1836 and 18G2, the national government discarded 
in its own operations every kind of paper money, both pay- 
ing out and demanding to receive coin money only ; while 
since 18G3 the national authority has claimed and exercised 
the mo.iopoly of furnishing the people all the paper money 
as well as all the coins. 

From the first establishment of the English colonies in 
America, the matter of a suitable exchange-medium attracted 
public attention, and was found to be attended with difficul- 
ties. The colonists drew all their supplies from the mother 
country, and for a long time had but few native products 



378 POLITICAL ECONOMY. 

to export in return, and consequently there was a constant 
tendency in the coin which reached them to flow off again 
to England in payment of these debts. Unluckily the colo- 
nists were under the impression that they could not afford 
to use good silver money in their small domestic exchanges, 
and this inclined them the more readily to penny-wise but 
pound-foolish substitutes. Unluckily also they had an ink- 
ling of the way in which Gresham's law works at all times ; 
and in these two things we have a perfect key to unlock the 
early monetary history of the country. Ehode Island in 
1749 expressed the whole thought of the colonies on the 
money-question: " This will always be the case with infant 
countries that do not raise so much as they consume, either 
to have no money, or if they have it, it must be worse than 
that of their richer neighbors to compel it to stay with them." 
This position involves an economical fallacy, and, therefore, 
a great practical mistake : no country can ' ' consume ' ' in 
the long run more than it "raises," because it must pay 
sooner or later for all it buys ; and a money kept equal to 
" that of their richer neighbors " keeps prices low, and thus 
discourages importations and encourages exportations. This 
tends to make what is "raised" equal to what is "con- 
sumed," using both words in the Rhode Island sense. One 
of the miseries of cheap money was then, is now, and always 
will be, that it makes the misguided country using it a good 
market for foreigners to sell in and a bad market to buy 
from. Of course the colonists at first resorted to barter in 
part, and then to local and legalized moneys cheaper than 
specie, of which tobacco and rice in the southern colonies, 
and corn and cattle in the northern for large transactions 
and "wampum" and bullets for small, were the chief. 
Wampum was of two kinds, black and white, both of parts 
of shells, and six white beads or three black ones were reck- 
oned equal to a penny sterling ; and bullets were legal tender 
in Massachusetts in 1635 for sums under one shilling at a 
farthing apiece. 



MONEY IN THE UNITED STATES. 379 

Under the false impression that only money made inferior 
to sterling would stay in the colony, Massachusetts began to 
mint in 1G52 silver shillings and sixpences and threepences 
purposely debased in weight (including seigniorage) 22 % 
below sterling. The silver for these coins came in mostly 
from the trade with the West Indies, to which were now 
shipped peltry, fish, various forms of lumber, beef, pork, 
pease, cattle, and horses, for which they took mainly sugar, 
molasses, rum, and silver. " They would have brought more 
silver and less rum and other merchandise, had the first been 
in greater request at home." (Bronson.) John Hull, the 
mintmaster, took out 15 pence out of every £ for his own 
pay, and grew rich by the process. That was over 6 °/ . 
In 1GG2, a twopenny piece was added to the series, and the 
mint existed (sometimes idle) for over 30 years, but all the 
pieces coined bore the dates of 1G52 or 1GG2. This paucity 
of dates is commonly and perhaps properly accounted for 
on the ground that coining in the colony was contrary to the 
prerogative of the Crown ; but it is to be added that John 
Hull was not a man to get new dies so long as the old ones 
would answer his purpose. The law forbade the exportation 
of these pieces under the penalty of thereby forfeiting one's 
whole visible estate ; because, though this money was much 
worse than sterling, there was a worse money than this circu- 
lating in the colony, and Gresham's law began to crowd it 
from the first, and to some extent it was both smuggled out 
and clipped down. But it furnished a sort of standard, nev- 
ertheless, and tended to keep the later paper money within 
distant sight of the silver, and became the reason why in 
New England there were six shillings to the dollar. The 
Spanish pillar dollar, which was the standard in the West 
Indies, was worth 4s. Gd. sterling; and in 1G72 a law was 
passed in Massachusetts allowing these dollars to circulate 
at Gs. provincial, which was a discount on the home pieces 
of 25 %. Ever after there were six shillings in a dollar in 
New England. Hull's money is called the " pine-tree " coin 



380 POLITICAL ECONOMY. 

age, and was the only coin money minted in the country till 
after Independence. 

In 1690 Massachusetts set the first example, which was 
imitated 20 years later by the other New England Colonies 
and by New York and New Jersey, of issuing "bills of 
credit ' ' to meet the expenses of the two disastrous Expedi- 
tions against the French in Canada. The bills were not 
made legal tender in private payments, and pains were taken 
to keep up their credit, but they were depreciated from the 
first, and came to be very much depreciated. Massachusetts 
and Connecticut made their bills receivable for taxes at a 
premium of 5%, laid special taxes for their redemption, and 
from time to time called in portions of the issues. In 1718 
Connecticut enacted that a debtor tendering these bills should 
not be liable to legal execution on his estate or person for 
the payment of that debt, an expedient, as we have seen, 
resorted to by England in the great Bank restriction of 1797- 
1821. These early New England bills bore no interest, 
were not loaned out by the colony, and were a convenient 
though dangerous means of anticipating the income of future 
taxes ; but after 1712 a paper money scheme originating in 
South Carolina came into favor in the colonies, which was, 
to open loan-offices for the issue of colony bills on the mort- 
gage of land, the interest on which helped to pay the colony 
expenses, the principal of which at first and on being paid 
back and reloaned furnished a capital to borrowers, while 
the bills themselves furnished a money for the people. 
Fonnsylvania had the best luck with this scheme of all the. 
< olonies which tried it : as early as 1729 Benjamin Franklin 
became thoroughly possessed of John Law's notion, that 
par. sr money may be "based" on land or other valuables, 
saying in a pamphlet of that year that "bills issued upon 
land are m effect coined land: " Pennsylvania bills neverthe- 
less weie at 46 °/ discount in 1748. Some of the later col- 
ony bills bore interest, some were of a " new-tenor " so-called 
designed to take up the old ones, Virginia in 1755 made hera 



MONET IN TIIE UNITED STATES. 381 

A legal tender for debts, some were issued in bounties for 
Indian scalps and for various manufactures and fisheries, 
but all ran one road of depreciation and gave birth to one 
set of results. Connecticut managed her issues the best of 
the colonies, and yet Bronson says of the state of thiugs 
in that colony in 1749, " Trade was embarrassed and the 
utmost confusion prevailed : no safe estimate could be made 
as to the future, and credit was almost at an end: no man 
could safely enter into a contract, which was to be discharged 
in money at a subsequent date : prudence and sagacity in the 
management of business were without their customary re- 
ward." 

Under the good lead of Thomas Hutchinson, afterwards 
Governor, Massachusetts determined in 1749 to abandon 
paper money altogether. She had tried it for sixty years, 
and found it fluctuating and troublesome. Bad as her own 
money had been, that of her neighbors had been worse. 
Gresham's law was busy then, as always ; and Rhode Island 
money, the worst in the New England colonies, had the 
most extensive circulation. The governor of Massachusetts 
said in 1744, that of £400,000 Rhode Island money in cir 
culation, £380,000 were in Massachusetts. The latter tried 
to persuade her sister colonies in 1743 to abandon paper 
money in common ; but they would not listen to it ; and so 
in 1749 she acted alone. Parliament had voted to ransom 
Louisburg from the New England colonies, which had cap- 
tured it from France in the name of the crown ; and the 
share falling to Massachusetts was £138, G49 sterling, aud 
this was shipped to the colony in coin. The then ruling 
exchange of Massachusetts bills in sterling silver was eleven 
for one, and at that rate the outstanding bills were redeemed. 
That colony became for a time the " silver colony." Busi- 
ness rapidly and steadily revived; and Rhode Island and 
New Hampshire found their trade transferred thither, and 
their paper money heavily depreciated in contact and con- 
trast with the newly current silver. 



382 POLITICAL ECONOMY. 

In 1751 Parliament forbade the governors of the New 
England colonies to give assent to any act by which bills of 
credit should be created, re-issued, or the time of their 
redemption extended ; but still permitted issues in the form 
of exchequer bills bearing interest, but these were to run 
not over two years or in case of war four years, and taxes 
must be laid sufficient to sink the notes at maturity, and ill 
no case must they be made a legal tender for debts. Such 
notes as these were not specially objectionable : the old notes 
kept tumbling : Connecticut bills in 1755 were 13 to 1 in silver, 
and the Rhode Island courts in 1763 made £7 in old-tenor 
bills equal to one Spanish milled dollar, or 4s. 6c?. sterling. 
The same year Parliament signalized the conquest of Canada 
and the conclusion of peace with France by forbidding all 
the colonies to issue any more bills of any kind ; but Massa- 
chusetts was the only colony which had gotten entirely rid 
of its paper money when the Revolution broke out twelve 
years later, she was wholly out of debt also, and she was 
the strongest of the colonies to grapple with the mother 
country, — advantages owed largely to her wise resolution 
of 1749. Under these circumstances it seems patriotic and 
therefore praiseworthy, that she agreed in the spring of 1775 
with representatives of Connecticut and Rhode Island to 
allow their paper money to pass current with her people, and 
also authorized the issue of new colonial bills of her own in 
sums small enough to circulate as money. 

In June, 1775, a week after Bunker Hill, the Continental 
Congress began its fiscal career by voting to emit $2,000,000 
in new bills of credit issued on the faith of the " Continent," 
but referred as to payment to the separate colonies in tho 
ratio of their supposed gross population. The best excuse 
for this action is the one urged by the Congress itself to the 
French minister: "America, never having been much taxed 
nor for a continued length of time, being without fixed gov- 
ernment and contending against what was once the lawful 
authority, had no funds to support the war; and, the contest 



MONEY IN THE UNITED STATES. 883 

being upon the very question of taxation, the levying of imposts, 
unless from the last necessity, would have been madness. To 
borrow from individuals without any visible means of repaying 
them, while the loss was certain from ill success, toas visionary. 
A measxire, therefore, which had been early adopted, and thence 
became familiar to the people, was pursued. TJiis was the 
issuing of paper notes representing specie for the redemption 
of zvhich the public faith was pledged." One phrase only 
of this clear passage is cloudy, "paper notes representing 
vspecie ; " John Law cast some haze over the Continental 
Congress ; the wording of the notes is curiously obscure, 
"this bill entitles the bearer to receive ten Spanish milled 
dollars;" the notes in no sense represented specie, they 
virtually promised to pay it to bearer ; unluckily, the party 
issuing the promise was not the party bound to pay, the 
continent promised while the colonies were expected to fulfil ; 
unluckily also, no good provision was made by either party 
for the fulfilment of these promises ; and consequently the 
vice of the continental money was, that there was no economi- 
cal limitation of their supply. The notes were not amenable 
to the law of supply and demand in the ordinary way, and 
hence they could not long maintain a steady value. In a 
certain remote sense they were indeed amenable to that law, 
which presided over the decline and final extinction of their 
value. These issues, too, came into competition with the 
revolutionary issues of eleven separate colonies, New Hamp- 
shire and Georgia issuing none, the total of which in 1775-83 
was $209,524,77G, so that this further increase of supply 
depreciated in comparison with silver both classes of noles. 
Eighteen months, however, had passed, and $20,000,000 
continental had been authorized, besides large local issues, 
before a marked depreciation began. 

As the issues increased, as it became evident to all that 
no provision was made to keep the promises, and as Burgoyne 
was prosperously advancing from Canada towards New York, 
the middle of 1777 saw a general fall of the notes, not the 



384 POLITICAL ECONOMY. 

same in all the States at the same time, and not at all in 
strict ratio with the increase of the notes. At the close of 
1777, the average depreciation from silver was not far from 
3 to 1 ; at the close of 1778, it was not far from 6 to 1 ; at 
the end of 1779, it was about 28 to 1 ; the press then rested, 
after Congress had put out nominally $200,000,000 hut actu- 
ally about $40,000,000 more than that, though the ceasing 
of issue did not arrest the cascade of discredit ; early in 1 780 
Congress advised the States to repeal their laws making the 
bills a legal tender for debts, and devised the scheme of 
" new tenor," by which the old bills might be taken up in 
a new paper bearing interest at 6 %, in a ratio of 40 to 1, 
to which the old bills had now sunk in comparison with silver, 
and $88,000,000 of the old paper were thus redeemed, New 
York and Massachusetts and Rhode Island taking up their 
entire quota in this way ; but the " new tenor " money never 
came into much circulation, and old and new alike dropped 
out altogether in the spring of 1781, when the old notes, 
if passed at all, were passing at about 300 to 1. The conti- 
nental army in camp at Newburgh combined to refuse to 
receive them on any terms ; and President Reed gives a 
pleasing picture of the way in which they passed out in 
Pennsylvania : — " At once, as if by that force which in days 
of ignorance would be ascribed to enchantment, all dealings 
in paper ceased; necessity brought out the gold and silver, 
a fortunate trade opened at the same time to the Havana for 
flour, all restrictions were taken off, and the Mexican dollars 
flowed in by thousands; this supported the sinking spirits of 
those zvho would have been discontented and uneasy, and in 
a few days specie became the universal medium and so con- 
tinues." The country found no more lack of silver for 
money than Massachusetts had found in 1749. Assuming 
that only $200,000,000 continental had been issued, Jefferson 
estimated that the nation realized from them $36,367,720 in 
specie value, or 18 °f of the nominal value. 

Ill effects of every kind came in the wake of this poor 



MONEY IN THE UNITED STATES. 385 

money. Rising prices are ever the gauge of a falling money ; 
rising prices then as ever gave hirth to rash speculations ; 
committees of safety undertook angrily to punish, under the 
names of " forestallers " and " engrossers" the speculators 
who bought commodities for a further rise ; there was the 
confusion of contracts usual under a variable money, gains 
for the artful and unscrupulous, and envy and sufferings for 
the poor; Shays Rebellion in Massachusetts in 178G was 
a natural outgrowth of this fearful injustice ; debtors availed 
themselves of the legal tender quality of the bills to pay onl}' 
2V or A °f wnat was due ; the morals of all classes of the 
people became corrupted through constantly calling things 
that were not as though they were ; peculations pervaded 
society ; Congress itself used wretched sophistries in resolv- 
ing that the money " oxight to pass current in all payments, 
trade, and dealings, and be deemed egual in value to the same 
nominal sums in Spanish dollars," and in lauding the paper 
as the only kind of money " which cannot take to itself icings 
and fly aioay ! It remains with us, it will not forsake us, if 
is always ready at hand for the purposes of commerce, and 
every industrious man can find it;" John Jay, and man* 
others, who knew better, helped to make current such nor, 
sense as this ; and then, a little later, swallowing all its brav. 
words, Congress repudiated for its part, and advised in effect 
the States to repudiate, all obligations to redeem these bills. 
Their volume had been swelled both by native and by British 
counterfeiters, and there was almost no crime to which their 
issue and depreciation did not contribute. Noah "Webster, 
a clear-headed essayist of the time, said of this paper money : 
" We have suffered more from this cause than from every other 
cause or calamity. It has killed more men, corrupted the 
choicest interests of our country more, and done more injustice 
than even the arms and artifices of our enemy." Washing 
ton, himself as a creditor the victim of that form of social 
robbery involved in a depreciated legal-tender, unfortunately 
did not understand the mysteries or rather the simplicities of 



386 POLITICAL ECONOMY. 

paper money, and thus vented his wrath towards the wrong 
objects : " It gives me sincere pleasure to find that the Assem- 
bly is so well disposed to second your endeavors to bring those 
murderers of our cause, the monopolizers, forestallers, and 
engrossers, to condign punishment. It is much to be lamented 
that each State, long ere this, has not hunted them down us 
pests to society, and the greatest enemies we have to the happi- 
ness of America. I would to God that some one of the more 
atrocioxis in each State was hung in gibbets upon a galloios 
Jive times as high as the one prepared for Haman ! No pun- 
ishment, in my opinion, is too severe for the man who can 
build his greatness upon his country's ruin." 

At the very juncture of the collapse of the Continental 
money, the rudiments of a better system appeared. For 
nearly a hundred years the Bank of England had been issu- 
ing paper payable on demand in gold and silver ; and Alex- 
ander Hamilton, a native of the West Indies, of Scotch and 
Huguenot parentage, but educated in New York and an aide- 
de-camp of "Washington with the rank of colonel, who had 
been a student of English finance, thought that something 
similar might be done with advantage in America. At the 
opening of 1780, when he was just turned of twenty-three, 
he wrote a letter to Robert Morris, a rich and influential 
member of the Congress, even then talked of for Continental 
Financier though he did not accept that office till May 7, 
1781, in which after showing clearly the causes of the decline 
of the old money and the necessity of a foreign loan, he 
furnished the outlines of a Continental Bank, by means of 
which the loan when obtained might be so applied as to 
re-establish the fallen public credit and become the basis of 
a redeemable paper money. The root of his suggestions 
was, to unite the private interests of moneyed men with the 
interests of the public credit and of a new national paper 
money payable on demand in good silver. The scheme was, 
to establish a Bank to be the fiscal agent of the Government ; 
to deposit in it the cash proceeds of the foreign loan, and 



MONET IN THE UNITED STATES. 387 

the product of the continental taxes as the)- were gradually 
paid in ; to issue shares of stock, one half of which were to be 
bought by individuals and the proceeds turned into the bank, 
and the other half to be held by the government with half 
of the profits of the banking ; then to issue bills payable in 
specie on demand, resting back for then- redemption on the 
loan, the subscriptions, and the taxes ; and thus to rely ou 
the subscribers to the stock, the holders of the bills, and the 
community in this way provided with a sound paper for com- 
mercial uses, to uphold the credit of the bank and of the 
Government. This is believed to be the first practical sug 
gestion of a specie-paying bank in America. 

We have no call to follow Robert Morris in his perplexing 
trials as continental Financier. Late in 1781 he presented 
to Congress a plan for a continental bank, which embodied 
in part and on a very small scale the ideas of Hamilton. 
On the last day of that year Congress chartered the " Bank 
of North America," to be located in Philadelphia, on a cap- 
ital stock of 8-100,000, nearly two-thirds of which was sub- 
scribed by Morris in behalf of the Government, because the 
distrust with which paper money had come to be regarded 
deterred individuals from putting their money in. Capitalists 
did not believe there would be any dividends, and the people 
were afraid the paper money would depreciate in their hands. 
A week after the charter the bank went into operation under 
these unfavorable circumstances. It had only $40,000 of 
specie in reserve, and so great was the fear in the first and 
most critical days of its life that all this would be drawn out 
by the presentation for redemption of the bills cautiously 
issued in loans, that friends of the bank were employed to 
follow those who thus took out specie and urge them to re- 
turn it. Morris had enlisted in behalf of the enterprise his 
personal and business associates in Philadelphia ; he wrote 
letters to the Governors of the States and many other prom- 
inent persons, urging subscriptions to the stock, sketching 
the advantages of a specie-paying bank, and trying to pavo 



388 POLITICAL ECONOMY. 

the way for the circulation of the bills ; bui these were in the 
beginning at a discount in the Eastern States of 10 to 15%, 
and the Southern States furnished no subscribers to the stock. 
Morris's efforts, however, soon checked the depreciation, and 
the bills rose to par. Pennsylvania granted the bank a State 
charter soon after Congress had given it a national one, then 
repealed and renewed its charter more than once, till in March, 
1 787, the State re-incorporated the concern in such different 
terms that thereafter it was no longer considered as a national 
institution. In the mean time, the bills became popular and 
the banking so profitable, that dividends on the stock from 
12 to 16% were earned yearly. Who ever heard of capital- 
ists who could resist 16% ? Schemes for another bank were 
in agitation, "two shops to go to " became the cry in Phila- 
delphia, and to head off rivalry the books of the bank were 
opened for new subscriptions in 1784 and the stock went up 
without difficulty from $400,000 to $2,000,000. That year 
Morris ceased to be national financier, and not long after the 
bank ceased to be national, but it continued as a State bank, 
and celebrated its centennial on the last day of 1881 by the 
publication of a detailed history of itself from the beginning. 
Eight days after the opening of the Bank of North America 
for business, Robert Morris helped and perhaps guided by 
his assistant financier, Gouverneur Morris, presented to the 
old Congress the first plan of a decimal coinage ever brought 
forward. So far the Spanish milled dollar had been the 
Revolutionary unit of money : it was time now to provide for 
a new national coinage. There are three possible ways of 
arranging a decimal system of coins : first, to have a very 
small unit, and proceed only by decimal multiplication ; 
second, to have a very large unit, and then go by division 
only ; and third, to have a moderate unit, and proceed deci- 
mally in both directions. Morris chose the first of these, 
and preferred a single standard of silver, and proposed as 
the unit of the new coinage a quarter grain of pure silver. 
The lowest silver coin should be composed of 100 of these 



S THE UNITED , 2,ti. 389 

units, and be called a Cent; the next of 500, and be called 
a Quint; and the last of 1,000, r.nd be called a Mark, These 
pieces would weigh respectively 25, 125, and 250 grains of 
pure silver, and should be alloyed each by 2, 10, and 20 
grains of copper. Besides the three silver pieces, there 
were to be two copper pieces of the value of five and eight 
of the uuits, to be called a Five and an Eight, by which 
device the new coppers would come into harmony with tho 
pennies of varying value in the different States. 

Congress referred this scheme to a Committee, of which 
Jefferson was the chairman, who praised its ingenuit}* and 
" ease of adoption with the people," but strongly criticised 
the unit as too small, and proposed in turn the dollar as the 
unit. Morris afterwards modified his plan in favor of a large 
unit and of a double standard, still keeping to the decimal 
idea; but ceasing to be financier in 1784, and Congress 
iucliuiug to follow the lead of Jefferson, the whole subject 
was referred to the latter, whose plan was adopted in 1786, 
and consisted of both denominations and coins called Eagles, 
Dollars, Dimes, and Cents. Each of these was to be sub- 
divided into halves, and the dime was also to be doubled, the 
binary system being thus recognized equally with the decimal, 
which was borrowed from Morris, as was also the denomina- 
tion cent though in a different sense. The same year an act- 
ual coinage of copper cents, our first national coins, took place 
under State authority in Vermont, Connecticut, and New Jer- 
sey ; and Congress also authorized the establishment of a mint, 
and contracted for 300 tons of federal cents to be struck, 
BOine of which were coined at the Connecticut mint in New 
Haven, and a few of them at the Vermont mint at Rupert. 

Three years later government went into operation under 
the present Constitution, and the action of the old Congress 
as to coins was reported to the new, and the whole matter 
was then referred to Alexander Hamilton as Secretary of the 
Treasury. He recommended the re-adoption of lefferson'a 
plan of a double standard, of coin-denominations, and of 



390 POLITICAL ECONOMY. 

the Spanish milled dollar as the unit, together with some 
minor proposals of his own. He had found that the Spanish 
dollar contained 871.25 grains of pure silver, and advised 
that the new silver dollar should contain the same. As he 
supposed that gold was then worth fifteen times as much as 
silver, he advised consequently that the gold dollar should 
contain 24.75 grains pure, and that both dollars should be 
alloyed at the English rate of -^, making the silver dollar 
weigh 405 grains standard and the gold dollar 27 grains 
standard. The Act of Congress in 1792, that established 
the Mint of the United States, appointed the coins very 
nearly as the Secretary had advised. It adopted his gold 
dollar unchanged, with its multiples, the eagle, half -eagle, 
and quarter-eagle, in gold ; the silver dollar was alloyed more 
than he advised, that is, by 44.75 grains instead of 33.75, 
and so weighed 416 grains standard, but had the 371.25 
grains pure, which has been the exact content of the silver 
dollar ever since. The subdivisions of this dollar, half- 
dollars, quarter-dollars, dimes, and half-dimes, were at that 
time proportional in purity and weight to the unit. Thus it 
will be seen that the full credit of introducing a national and 
decimal system of money is due not to one man, but to three 
or four ; that all three of the possible ways of arranging 
such a system were recommended in turn, and the third 
finally adopted ; and that, while the undoubted superiority 
of the decimal system in an upward scale is fully recognized, 
the natural tendency of men's minds to subdivide into halves, 
quarters, eighths, and so on, rather than into tenths, hun- 
dredths, and so on, is recognized also. Eighty years have 
not yet naturalized among us the dime and mill, nor expelled 
the York shilling, the eighth of a dollar. 

The terms of our monetary system may properly delay us 
for a moment. The word dollar is derived from a German 
word which means valley, and was first applied to coins in 
the mining region of Bohemia, at a place called Joachims- 
thal, where silver pieces of one ounce 'weight were coiued 



MONET IN THE UNITED STATES. 391 

about 1520, and were called Joachimsthaler, and then for 
shortness thaler, whence dalera in Spanish, and in English 
dollar. The thaler has remained a German money of ac- 
count until our own time, and the Spanish dalera became so 
famous in the commercial world, so familiar to our fathers 
in their dealings with the "West Indies and other Spanish 
colonies, that Congress adopted both its name and its weight 
of pure silver. The present Mexican dollar is a lineal de- 
scendant of the old Spanish coin, though it contains six 
grains more of pure silver. The new "trade dollar," de- 
signed for export only, and not legal tender at all, contains 
6| more grains of pure silver than the standard silver dollar, 
that is, 378 grains. It is hardly necessary to add that dime 
is a corruption of the Latin decern, ten ; that cent is a con- 
traction of the Latin centum, hundred; and that mill is a 
contraction of the Latin mille, thousand. 

There was a curious debate in Congress at the time as to 
the devices which the coins should bear. As the bill came 
from the Senate, where it originated, the gold and silver 
pieces were to have on one side the figure of the eagle, 
which the Continental Congress long before had adopted as 
the national emblem, and near this, the legend "United 
States of America." This was for the obverse of the coin, 
and so far nobody had any objection. For the reverse, the 
bill proposed that, in accordance with the usages of all 
nations from the time of the earliest known coinage, the 
impression or representation of the head of the President 
of the United States for the time being, together with his 
name, order of succession in the presidency, and the date of 
the coinage, should be stamped. This was strongly objected 
to in the House, as savoring of monarchy. The President's 
head on the coin was deemed by some a dangerous thing for 
the republic, and the proposal led to a sarcastic and even 
acrimonious debate, and was at length defeated in the House 
by a vote of twenty-six to twenty-two, in which the Senate 
was afterwards obliged to concur, and a proposition made 



892 POLITICAL ECONOMY. 

by Key of Maryland was carried, to substitute a figure of 
Liberty instead of the obnoxious head of the President ; but 
under precisely what sort of a figure to represent Liberty 
was then the difficulty, and at the next session Elias Boudi- 
not of New Jersey, afterwards the director of the mint, 
endeavored to get substituted for the emblematic figure of 
Liberty the head of Columbus, but in vain ; the Republican 
party so-called at the time was determined that the figure of 
Liberty in some form should be stamped on the coins, and 
so it has been from that day to this. 

The original Mint of the United States was established at 
Philadelphia in 1792, and the first federal coins of silver 
were issued in 1794, of gold in 1795. While it was still 
doubtful where the ultimate seat of the national government 
would be placed, the citizens of that beautiful city were 
strongly in hopes of being able to persuade Congress per- 
manently to abide in their town, in which the old continental 
body had first met, in which Independence had been declared, 
and which, more than any other, was popularly regarded as 
the headquarters of the national Union. A notable instance 
of log-rolling legislation, the first in our history, transferred 
the capital of the country to the banks of the Potomac ; but 
the good people of the Quaker City have nevertheless alwaj^s 
retained the Mint, as a memorial of their earlier position in 
the history of the government. By the law of 1873, that 
mint, till then the head establishment for the whole country, 
and the later mints till then called " branch-mints," and the 
Assay-Offices for the stamping of gold and silver bars, all 
became separate and are responsible to a Bureau of the 
Treasury department, whose chief officer is styled Director 
of the Mint. 

From the ratio of 1 : 15 fixed by the act of Congress in 
accordance with Hamilton's recommendation as the relative 
value of gold in silver to be maintained in the coins, unfore- 
seen and important consequences followed, since that was 
not the tiue ratio of their value at the time in the markets 



MONEY IN THE UNITED STATES. 393 

of the world ; an ounce of gold was worth more at that time 
than 15 ounces of silver, and accordingly was worth more 
Dut of the coinage than in it, and was therefore exported in 
preference to silver in payment of foreign balances, espe- 
cially after France had changed the relative legal value to 
1 : 1 5 .V ; and of course the gold refused to circulate here 
under those circumstances, being undervalued in the coiu- 
age, thus giving us another neat illustration of the economi- 
cal law that the cheaper money will push the dearer out of 
circulation. Not till 1834 was the attention of Congress so 
Strongly drawn to this fact as to secure a law to remedy it, 
and this law substantially rated gold to silver at 1 : 1G. The 
weight of the gold dollar was then reduced from 27 grains to 
25.8, and the alloy increased from one part in twelve to one 
part in ten. This law nude at one jump the legal valuation 
of gold 6.58% greater than before in silver, which remained 
on changed. But this in turn was going too far in the oppo- 
site direction; gold was not worth 1G iu silver in the mar- 
kets of Europe ; and consequently the current of the metals 
was now reversed, silver passing in preference abroad to 
liquidate the balances of trade, and gold beginning to come 
to the United States, where it was more than 3% dearer in 
silver than in Europe. Three years later, that is, in 1837, 
the standard of ■£$ fine instead of j 8 ,?,, was applied to silver 
also, and this altered fineness made a change in the weight 
of the silver coins necessary, if the ratio of 1 : 1G were to 
be maintained. Accordingly the weight of the silver dollar, 
and of two halves, four quarters, and so on, was reduced 
from 416 grains to 412^, that is to say, less alloy was put 
into the silver coins, but the fine silver to the dollar was 
kept just as it was, 371.25 grains. Since 1834 there has been 
no change in the gold dollar, and since 1837 there has been do 
change in the silver dollar-piece, and the ratio of value be- 
tween gold and silver in our coins is still 1 : 15.98, as the 
silver dollar of 1878 and onwards corresponds in weight 
and fineness with the dollar of 1837. 



394 POLITICAL E( ONOMY. 

Gresham's law, however, was busy from the beginning 
with different parts of this coinag .• scheme, and particularly 
with the attempt to keep gold ai d silver in equilibrio at a 
fixed valuation. Only 821 silver dollar-pieces were coined 
in the year 1805 ; and May 1, 1806, there is an order from 
President Jefferson to the Director of the Mint, " that all 
the silver to be coined at the mint shall be of small denomina- 
tions, so that the value of the largest pieces shall not exceed 
half a dollar." The reason given for this order is, " that 
considerable purchases have been made of dollars coined at 
the mint for the purpose of exporting them, and that it is 
probable that further purchases and exportations will be 
made." The coinage of silver dollars, thus suspended, was 
not resumed for thirty years. What was the matter with these 
dollars? Nothing, only they were too valuable. Clipped 
and worn Spanish-Mexican coins had slipped into circu- 
lation in large numbers, and driven out the good pieces in 
accordance with a principle better understood now than then ; 
while the order itself was not very intelligent, insomuch as 
two halves, four quarters, or ten dimes, were equally valu- 
able with the dollar-pieces, and as a matter of fact were 
almost equally driven out by the smaller Spanish-Mexican 
coins. In 1853 the disadvantages of a double standard 
had become plain enough, for experience proved that the 
value of gold and silver each in each was not constant but 
variable ; and Congress then wisely determined to make Gold 
alone the legal tender, except in sums below $5, and also to 
reduce the weight of the silver half dollar and its subdivis- 
ions, so that their nominal value should be considerably above 
their real value, and their exportation be thus prevented. 
Accordingly the half dollar was reduced from 206^ to 192 
grains, and the smaller coins proportionally. This was in 
imitation of* the English legislation of 1816, and brought in 
a subsidiary silver coinage of w bich a nominal dollar's worth 
weighed 6.91% less than the silver dollar, which was not 
mentioned one way or the other in the law of 1853, but 



MONEY IN THE UNITED STATES. 395 

which was then worth about three cents more than the gold 
dollar. For reasons already given, silver dollars circulated 
but uttle in the United States even before 1853, and none 
at ali between that date and 1878, when a law was passed 
requiring them to be coined in immense numbers of the old 
weight and ratio to gold and with full legal tender fuuctions, 
but their circulation was sluggish up to 1883. 

Through the influence of the late Samuel B. Ruggles, the 
subsidiary silver coins were brought in 1875 into harmony 
with the silver-system of France and the Latin Union. 
Their five-franc silver piece, which is also ■£$ fine, weighs 
just 25 grams or 385.8 grains; a dollar's worth of our sub- 
sidiary silver weighed 384 grains ; and it was therefore only 
needful to add a slight fraction to our smaller silver coins to 
knit a real connection between them and much of the Euro- 
pean silver. Two halves, four quarters, ten dimes, of our 
silver siuce 1875, are debased in weight G.47% as compared 
with the standard silver dollar. A more important coinage 
connection with Europe was knit through our five-cent nickel 
pieces, each of which weighs just five grams, and five of 
which laid along in order measure exactly a decimetre in 
length. These were the first official applications of the 
Metric System on the part of the United States. The 
nickel pieces, both the five-cent and the three-cent, are 75 
parts copper and 25 parts nickel ; and the one-cent piece is 
95 parts copper and 5 parts tin-zinc. Debts of 4 cents can 
be legal!}- paid in one-cent pieces, of 60 cents in three-cent 
pieces, of 100 cents in five-cent pieces, of 500 cents in sub- 
sidiary silver, and of any amount in gold coins or in silver 
dollars. 

Now we turn back to paper money, and following that till 
the present time, we shall have given a complete though suc- 
cinct account of Money in the United States. When the 
present national government went into operation in 1789, 
besides the Bank of North America in Philadelphia, the 
Bank of New York in New York and the Bank of Massa- 



396 POLITICAL ECONOMY. 

chusetts in Boston had been opened for business. All three 
were State banks issuing bills convertible into coin, and each 
confined its business for the most part to the city in which 
it was located. In December, 1790, in pursuance of his new 
duties as Secretary of the Treasury, Alexander Hamilton 
recommended to Congress a Bank of the United States. 
Undoubtedly the Bank of England was in his mind; un- 
doubtedly he was in favor of a strong central government ; 
and undoubtedly he had been disappointed at the local turn 
taken by the Bank of North America. There was at that 
lime no national money of any kind, except some copper 
cents. He argued, first, as respected the people, that a 
specie-paying national Bank would afford both through its 
loans and its bills needed facilities to domestic exchanges at 
a time when money was scarce and confidence was low ; and 
second, as respected the government, that it would furnish 
a good paper medium for its monetary transactions, and be a 
resource for its needed temporary loans. But the constitu- 
tionality of Hamilton's plan was stoutly denied in Congress. 
The first-rate abilities and growing reputation of that eminent 
statesman had already awakened jealousies both in Congress 
and in the cabinet. Nevertheless, a bill, in substantial 
accordance with the views of the Secretary, passed both 
houses by large majorities. Washington, before signing it, 
required the written opinion of his cabinet on the question 
of constitutionality. Hamilton and Knox took the affirm- 
ative ; Jefferson and Randolph the negative ; the President, 
us often, sided with Hamilton, and signed the bill. 

On New Year's Day, 1858, the present writer had the 
pleasure of calling on the widow of Alexander Hamilton, 
who survived him just fifty years. Turning the conversation 
on her husband's connection with the government, the old 
lady remarked with enthusiasm, — " My husband gave you 
a bank. Jefferson thought we ought not to have any bank, 
and Washington rather thought so, too ; but my husband 
said we must have a bank ; and one day he said to me, ' My 



HONEY IN THE UNITED STATES. 397 

dear, you must sit up with me to-night, and write for me ; ' 
and I sat up all night, and I wrote it out with my own hand, 
and the next morning he carried it to Washington, and 
we had a bank!" This last was pronounced not without 
exultation. 

In July, 1791, the first United States Bank went into oper- 
ation at Philadelphia, under a charter that was to run twenty 
years, an3 with a capital stock of $10,000,000, one-fifth of 
which was subscribed by government and four-fifths by indi- 
viduals, and the whole of which was subscribed in a few hours 
after the books were opened. There were things in this Bank 
both new and old. Hamilton's reading had given him good 
points out of the past, and his clear eye saw the special needs 
of the present. This was the chief feature of the stock : three- 
fourths of the subscription of individuals must be in the new 
government stocks, in which Hamilton had just before funded 
the old public debt, together with the revolutionary State debts 
then assumed bj 7 the nation for that purpose. These two 
classes of debts had been formed into one new and compact 
debt, bearing G% interest. The demand for the certificates 
of this debt, in order to make subscription with them to the 
new bank stock, carried them very shortly up to par, so that 
the Bank was made an incidental means of establishing the 
credit of the United States. This idea came from the first 
rechartering of the Bank of England. That institution also 
furnished the main thought of this, namely, that the security 
for the bills and deposits of a bank is best placed in govern- 
ment stocks. The later New York banking system, and the 
present system of National Banks, both turn upon this same 
point. A second incidental object in the charter of this 
United States Bank was to give the bank a direct interest in 
sustaining every way the credit of the new government under 
the Constitution. But we have to do with it now mainly as 
furnishing during twenty years, the term of its charter, a 
paper money, secured by government stocks and 1>\ 
coming from the taxes, that was current at a uniform value 



398 POLITICAL ECONOMY. 

all over the country ; this was something new in the experi- 
ence of the people with paper money ; no bills were issued 
of a less denomination than $10 ; the money was popular, 
and it was in addition to the scant volume of Spanish -Mexican 
coins, while the loans from a bank with ample capital gave a 
sharp spur under the circumstances to industry and commerce ; 
the dividends to stockholders never fell below 8, and frequently 
rose to 10% ; and it is no wonder that, as the time approached 
for the charter to expire, the stockholders were anxious for 
a renewal of their privileges. They applied to Congress for 
such renewal, offering to the government a bonus in account 
of $1,250,000 for the privilege, but the opposition to the 
continuance of the Bank was now strong, owing mainly to 
the increase in the number of State banks in the twenty years 
from 3 to 88, and to the hope that these, in case there were 
no. national bank, might obtain the custody and use of the 
national funds and furnish the country with paper money in 
its stead ; and accordingly the recharter was defeated in the 
House by one vote, and in the Senate also by the casting vote 
of the Vice-President, and the Bank was obliged to wind up 
its affairs in 1811. 

Then came in a sort of mania for the creation of new State 
banks. The Pennsylvania Legislature chartered 41 in one 
session, and that over the Governor's veto. New England 
had set the example of " wild-cat " banking, but had come 
to her senses ; a heavy penalty was imposed there on all 
bank-notes not redeemed on demand ; and in 1813 a central 
bank of redemption was chartered in Boston, called the New 
England Bank, for the purpose of keeping New England 
bank-notes at par, a function that was afterwards performed 
by the Suffolk Bank and called by its enemies " suffocation." 
As money is not a commodity of which an unlimited quantity 
can be absorbed by business, but is only an instrument for a 
certain specific purpose ; and as when more than enough for 
this purpose is put out, a diminution in value of every part 
of it is inevitable, whether the money be specie or paper ; 



MONEY IN THE UNITED STATES. 399 

and as it was the immediate pecuniary interest of each of these 
new banks to crowd its notes into circulation ; it is no wonder, 
that distrust of the notes was engendered, that chere was such 
a presentation of them for redemption that the banks could 
not respond, and that, in the fall of 1814, there was a general 
stoppage of all the banks in the United States excepting those 
in New England. New York city bank-notes went down to 
90, those of Philadelphia to 82, those of Baltimore to 80, 
and those of Pittsburg to 75%. Yet State banks multiplied 
even after the crash, going up in number to 24G in 1816. 
But how shall they resume specie payment? Mr. Dallas, 
Secretary of the Treasury, and many others, thought that a 
new and strong central Bank, on which these might lean for 
support, would enable them to resume payment, and go on 
thereafter on better principles. Accordingly Congress char- 
tered the second Bank of the United States, with a capital 
of $35, 000,000, to which government subscribed $7,000,000, 
but was to be allowed by the Bank on account §1,500,000 
as a bonus. The Bank was opened in January, 1817, the 
charter was to run twenty years, and by its help the New 
York banks resumed in little more than a j'ear and all the 
rest of the State banks before the close of 1819. 

But the new bank was not fortunate in its management. 
It made great mistakes. It sometimes discounted the notes 
of individuals on a pledge of the certificates of its own stock. 
It pushed its own notes into circulation with great eagerness. 
It is thought, that $100,000,000 of these notes were in the 
hands of the people before the first c year was out ; and it is 
known, that its discount line was $13,000,000 in March, 1818. 
Such a rapid swell in the volume of money had its usual con- 
sequences. The bank and its bills were distrusted. Silver 
came to bear a premium of 10% , aud of course was exported. 
Congress ordered a committee of investigation, and a resolu- 
tion was offered that the charter be forfeited. This failed 
to pass, to the disgust of John Randolph, who said then 
what many a member has said since in substance, " a man 



400 POLITICAL ECONOMY. 

may as ivell go to Constantinople and preach Christianity, 
as to go to Congress and preach against banks." Although 
under the abler and more careful management, first of Lang- 
don Cheves, and then of Nicholas Biddle, the Bank recovered 
something of stability, it never enjoyed the same credit as 
the first Bank ; and in the final wind-up in 1837 it was found 
that the whole capital had been lost, though it managed to 
pay its debts. 

All this was not wholly the fault of the Bank itself, foi 
President Jackson began his famous contest with it seven 
years before its charter was to expire, by giving the Directors 
fair warning in his annual message that there would be " con- 
stitutional difficulties " in the way of their securing any exten- 
sion of their privileges, and three years later he vetoed the 
bill to recharter the Bank. Then he determined to remove 
from its custody the national moneys, and to place them in 
certain selected State banks. The order for this removal 
must legally come from a Secretary of the Treasury, and he 
displaced two of these in succession for refusing to give it, 
and at last appointed the late Chief Justice Taney, then a 
young lawyer of Baltimore, who at once gave the required 
order. The national deposits at the moment amounted to 
$10,000,000, and these had been properly treated by the 
bank as- a part of its working capital, and the discount 
line resting in part on these deposits was at the time over 
$60,000,000, and their removal affected credit and disar- 
ranged business to a remarkable degree and caused intense 
excitement all over the Union. Shortly after the removal 
of the deposits, followed the issue of the famous " specie- 
circular," in which the Treasury directed the receivers of the 
public money to take nothing but gold and silver in payment 
for sales of the public lands. Speculators and others had 
been making large purchases of western lands, and expected 
to pay for them in paper money, and the specie-circular came 
upon these like a clap of thunder, and made the previous 
confusion worse confounded. President Jackson went out 



MONEY IN THE UNITED STATES. 401 

of office, and the second Bank of the United States went 
out of being, in the same year ; but Van Buren, who was 
proud to "tread in the footsteps of my illustrious predecessor," 
completed the inaugurated movement and effected the divorce 
of the Government from all banks whatsoever, first, by di- 
recting the State banks which then had the keeping of the 
public moneys to distribute them as surplus revenue among 
the States, and second, by the Sub-Treasurj* scheme in pur- 
suance of which the United States received in payment of 
all dues and paid out in all disbursements gold and silver 
only. That was doubtless a good goal to reach, though there 
was something headlong in the methods of getting to it, which 
doubtless contributed to the overthrow of Van Buren's party 
in 1840. 

From 1837 to 1862 there was no national money in the 
United States except the coins ; the withdrawal from circu- 
lation of the bills of the United States Bank helped intensify 
the great commercial crisis of 1837, and stimulated the crea- 
tion of new State banks whose number was 675 in 1838 ; 
and these State banks, increased at last to over 1,500 in all, 
furnished till 1862 all the paper money of the country. Their 
bills were nominally convertible into coin at the will of the 
holders. Some of the States required then' banks to keep a 
percentage of specie on hand for the redemption of their 
bills, and some of them required only a deposit with an 
officer of the State of some kind of securities on the strength 
of which the banks were allowed to issue an equivalent amount 
in bills, and some of them did not require even so much as 
thi?.. It was a fast and loose system. In 1829, Massachusetts 
passed a law limiting the bills of any bank to 25% in excess 
of its paid-up capital, and New York established the so-called 
" Safety Fund System," under which a common fund was 
created by the contribution of the banks for paying the in- 
debtedness of any bank that should become insolvent, but 
neither law proved adequate to its purpose. Nine years 
later New York founded the " Free Banking System," undei 



402 POLITICAL ECONOMY. 

which the circulating notes were secured by a deposit of 
United States or New York State stocks, or bonds and mort- 
gages on improved and productive real estate ; and in 1840 
each bank was required to redeem its notes at an agency 
either in New York City, or Albany, or Troy. Both of these 
good features were afterwards borrowed by the United States 
to put into the present national banking law, but they were 
not sufficient in the State that devised them to secure per- 
fectly the immediate or even the ultimate conversion of tin 
notes into coin. Still, the paper money of New York and 
New England on account of the pains taken for its redemp- 
tion circulated more or less all over the Union, while the 
money of other States had for the most part only a local 
circulation. As a rule in those days every bank-note offered 
was scrutinized by the person asked to take it in payment, 
and the common distrust and refusal were a great hindrance 
to domestic exchanges. 

At last the people wisely concluded to abandon this whole 
State paper-money system. The following are among the 
chief grounds of the wisdom of that action. (1) The sys- 
tem was liable to great and sudden contractions and expan- 
sions in the volume of the paper money. For instance, the 
volume in 1858 was $59,570,474 less than in 1857, and in 
1863 more by $54,885,139 than in 1862. The largest aggre- 
gate of this money was in 1857, before the panic of that 
year, when it rose to $214,000,000. Just before the panic 
of 1837 it stood at $149,000,000, and then fell off to 
$116,000,000. (2) The ratio of the paper money to the 
specie reserved to redeem it was always a very high ratio. 
For instance, the average for the whole country in January, 
1863, was 4:1; in Rhode Island 12 : 1 ; and in Vermont 
28:1. Such a paper money can be called convertible only 
by a stretch of courtesy. (3) As a matter of fact, so soon 
as there came to be a financial pressure, and especially when- 
ever the exigencies of commerce withdrew gold from reserves 
already so small, the banks were compelled to confess what 



MONET IN TIIE UNITED STATES. 403 

everybody might have known beforehand, that they wore 
unable to redeem their promises. Four or five times during 
the continuance of the system panics attacked the paper 
money, and the banks generally suspended specie payment. 
In these times of stress, some of the banks and some sec- 
tions of the country did better than others ; the Bank of the 
State of Indiana, for example, under the management of 
Hugh McCulloch, afterwards Secretary of the Treasury, 
maintained specie payments in the trying periods of 1857 
and 1861. (4) The instability of the general system tended 
towards a reckless wa} r of doing business, and led on to fre- 
quent bankruptcies both of banks and individuals, which 
became a just reproach to the nation. The banks contrib- 
uted powerfully in times of quiet by a S3 T stem of generous 
loaning of their bills, on which their profits depended, to 
induce a spirit of speculation and a willingness to contract 
debts, and then when the re-action came experienced them- 
selves how much easier it is to loan paper promises than to 
fulfil them. Their inability to continue in troublous times the 
free loans which helped to bring them on, and their repeated 
failures to make good the obligation to redeem their own 
bills, caused incalculable losses of property. There cau be 
no hesitation in affirming that the expense of maintaining a 
gold and silver money for all the wants of the whole country 
might have been met many times over from the vast losses 
coming from this bank-paper system. (5) This cheap [taper 
money kept out the coins from common use in payments, and 
bills were so likely to be uncurrent in localities distant from 
their place of issue, that travelling from one part of the 
country to another was often difficult as well as the making 
of payments between them ; the country was not really one 
in its monetary relations ; men unwittingly took uncurrent 
bills in payment or bills that became uncurrent in their hands, 
and lost in other ways by the failure of banks ; and the feel- 
ing with which the people, especially at the West, turned 
to a better system, was well voiced by Horace "White, " the 



404 POLITICAL ECONOMY. 

farmers if Illinois, Michigan and Wisconsin, would rather 
encounter ivar, pestilence, or famine than the old style of un- 
secured or imperfectly secured bank-notes, by which they were 
robbed at frequent intervals during the twenty-five years pre- 
ceding the war." 

Appalling financial difficulties confronted Secretary Chase 
during the first year of the late civil war. The nation must 
borrow, or perish ; but the preceding administration, even in 
the initial troubles which had now culminated, had paid 12% 
interest on a public loan, and could borrow but little at that 
rate. The credit of the government was very low in 1861 ; 
but the country must be defended, an army be raised and 
equipped and put into the field and paid, and the ordinary 
expenses of government be met. Accordingly the Secretary 
in his first annual report to Congress in December of that 
year, with an eye chiefly to making easier the borrowing of a 
few hundred thousand dollars, recommended the organization 
of a new national banking system. The main features of 
the plan proposed, taken in part by acknowledgment from 
the New York State system, were, (1) that the bank-notes 
to be issued as money should all be secured by bonds of the 
United States bought by each bank in amount proportioned 
to its notes but deposited in the national Treasury as security 
for their ultimate redemption ; (2) that the notes should be 
furnished to each bank by the United States, which should 
guarantee their full payment, not simply as a trustee holding 
securities for the purpose, but also as a principal pledging 
the public faith ; and (3) that each bank should be obliged 
to receive at par for any debt due it the notes of any other 
bank in the system, and the government be obliged to receive 
them for all taxes or other dues except duties on imports, 
and have the right to pay them out for all debts except 
interest on the public bonds. This national banking scheme, 
planned to secure not only a market for bonds but also a 
paper money uniform in character for the whole country and 
wholly secured as to convertibility, foreshadowing as it did 



MONEY IN THE UNITED STATES. 405 

the winding up of the State bunks as issuers of paper money, 
found at first but little favor in Congress or among the peo- 
ple. In his second annual report a year later, the Secretary 
iterated his recommendations, and enforced them by argu- 
ments drawn from the pressing need of large loans, from the 
character of the money for soundness and uniformity to be 
thus furnished to the people, from the convenient agencies 
which such banks would furnish for the deposit of public 
moneys, and from the firm anchorage which such a system 
would give to the union of the States. These arguments, 
which found a response especially emphatic from the Western 
States, coupled with the assurance of the Secretary, that, if 
Congress should concur in his views, though conscious of the 
great difficulty which vast, sudden, and protracted expendi- 
tures imposed on him, he thought he should still be able to 
maintain the public credit and provide for the public wants, 
induced Congress to frame and pass "An act to provide a 
national currency secured by a pledge of United States stocks, 
and to provide for the circulation and redemption thereof." 
The act was approved b} 1- the President Feb. 25, 1863. 

In the mean time, Congress felt compelled to issue Treas- 
ury notes made legal tender for all debts public and private 
except duties on imports and interest and principal of the 
national bonds. These notes have been commonly called 
greenbacks. The first issue was made in April, 1802, and 
was justified as a war measure. §150,000,000 were put out 
in all, of which 887,000,000 were taken in, and the rest was 
still circulating in 1883. In one month after the first issue 
of $150,000,000, these greenbacks began to droop in value 
as compared with gold ; in four months, when the second 
batch of $150,000,000 was authorized, their depreciation 
was already marked and firm ; and in nine months, when 
President Lincoln reluctantly gave his approval to the third 
issue of the same amount in order to pay off the soldiers 
and sailors, he uttered a solemn protest against the policy 
of thus inflating the current money, which, he said, "hat 



406 POLITICAL ECONOMY. 

already become so redundant as to increase prices beyond 
real values, thereby augmenting the cost of living to the 
injury of labor, and the cost of supplies to the injury of 
the whole country." In March, 1863, $50,000,000 of paper 
promises for fractions of a dollar were authorized, redeem- 
able in sums of not less than three dollars in greenbacks, 
and receivable for all dues to the United States less than 
five dollars, except for duties on imports. Subsidiary silver 
coins have since taken the place of these fractionals. In 
July, 1863, the greenback dollar had lost one-quarter of its 
nominal value ; in July, 1864, it had lost almost two-thirds 
of its nominal value, as its lowest point was reached in that 
month, namely, 35 cents as compared with the gold dollar ; 
in July, 1865, it had risen to 70 cents ; in July, 1866, it 
stood at 66 cents, just two-thirds of a dollar proper ; and 
from that time it slowly rose, with many fluctuations, till 
New Year's, 1879, when it became legally and actually re- 
deemable in gold and silver. Its variations for the sixteen 
years, however, cannot be counted by the number of years, 
nor even by the number of days ; for the} 7 were numerous 
on each business day, and, as Comptroller Knox says, " can 
only be numbered by tens of thousands." What a Measure 
of Services that was ! 

A beautiful illustration of Gresham's law was witnessed 
in the interval of time just traversed. In 1862, just so 
soon as the greenback dollars fell fairly below the gold dol- 
lars in value, the latter left the channels of trade in a very 
few days' time. Down sank the greenbacks gradually below 
the subsidiary silver coins in value, and the latter obediently 
and utterly abandoned the commercial field. At last the 
greenbacks went down even below the level of the copper 
cents, which at that time cost the government about half a 
cent each, and this invariable law of money swept the circu- 
lation bare of coppers, and the people had to resort for their 
smallest change to postage-stamps and shin-plasters and other 
abominations. Happily, the country survived to see these 



MONET IN THE UNITED STATES. 407 

processes exactly reversed, and the old law confirmed on its 
other side. When, after a considerable interval, the paper 
dollar appreciated to the proper height, it was interesting to 
watch the copper cents put in a prompt re-appearance ; after 
a still larger appreciation of the paper, back came in abun- 
dance the subsidiary silver ; and as the day of the redemption 
of the paper drew near, silver dollars and gold dollars greeted 
smilingly their old acquaintances of the street. 

When, after a long time, the question of the constitutional 
right of Congress to make a mere promise a legal tender for 
debts, that is to say, to make a promise the same thing 
legally as its fulfilment, — a monstrous incongruity, — was 
brought up to the Supreme Court of the United States, the 
majority of the court, including Chief Justice Chase, who 
as Secretary of the Treasury had recommended the opposite, 
decided, after most elaborate argument and deliberate con- 
sideration, that the Constitution gave no authority to Con- 
gress to create a paper legal tender which could apply to 
pre-existing contracts ; and some of the judges held that it 
was equally unconstitutional to compel parties, in the ab- 
sence of mutual agreement to that end, to receive such 
paper promises in fulfilment of contracts even made sub- 
sequently to the passage of the law. After this decision 
was thus solemnly rendered, two new judges whose opinions 
on the point were known beforehand and who were selected 
on that very account, were put upon the bench, and this 
change in the personnel of the court was made the means of 
reversing the decision, no new points therefor being raise! 
either by the new judges or by counsel in the new trial, and 
the chief justice and his associates still adhering to their 
former opinions. It is scarcely needful to add, that the 
Supreme Court of the United States suffered in the 
ment of good citizens by that transaction; that the 
legal and financial opinion in the country yielded little 
respect to a decision thus secured; and that intelligent 
people do not believe that constitutional law can sanc'.ion 



408 POLITICAL ECONOMY. 

what contravenes at once common sense and common moral- 
ity. Judge Field, one of the majority in the first decision 
uses this just language in respect to the second, in which he 
could not concur: " It follows, then, logically, from the doc- 
trine advanced by the majority of the court as to the power of 
Congress over the subject of legal tender, that Congress may 
borrow gold coin upon a pledge to repay gold at the maturity 
of its obligations, and yet in direct disregard of its pledge, in 
open violation of faith, may compel the lender to take, in 
place of the gold stipulated, its own promises; and that legis- 
lation of this character would not be in violation of the Con- 
stitution, but in harmony ivith its letter and spirit. WJiat is 
this but declaring that repudiation by the government of the 
United States of its solemn obligations would be constitu- 
tional? " 

To complete this history of Money in the United States, 
it only remains to follow till the present time the action of 
the new national banks so far as their issue of paper money 
is concerned. We shall see in the next chapter, that it is 
not an essential function of Banking to issue paper money, 
although in this country this has been more commonly added 
to the other more important duties of the banker. Banking 
proper can only be understood in connection with the general 
subject of Credit. Slowly at first, many of the old State 
banks re-organized under the national law of 1863, and many 
new banks were incorporated under its elaborate provisions. 
The charters of all extended twenty 3-ears. The bills of the 
old banks were gradually retired under a heavy national tax. 
The bills of the new banks, although they came into direct 
competition with the greenbacks and fell in value as com- 
pared with gold by equal step with these under the increase 
of their common volume, soon became popular and circu- 
lated everywhere on account of their national character ; for, 
although they were not made legal tender for all debts, they 
were made redeemable into greenbacks, which were thus legal 
tender; and, as this secondary redemption was but rarelv 



MONET IN THE UNITED STATES. 409 

culled for, as the amount of greenbacks required of each 
bank for the purposes of this redemption was reckoned in 
as a part of the whole reserve required of each bank to he 
k?pt against its other and greater liabilities, and as since 
1374 only 5% of its bills are required to be kept in lawful 
money by each bank on deposit in the national treasury for 
their redemption, national banking became very profitable 
partly o:i the ground of this privilege of issuing money, and 
the number of banks multiplied in all parts of the country. 

In the eight years, 1870-77, a period for the most part of 
great depression in most branches of business, the national 
banks of the whole country, according to Comptroller Knox, 
cleared an annual net profit of 8%, to which he credits 
about o r / net profit on the issuing of the bills. No other 
leading branch of business made any such profits as that in 
that interval. At the close of the fiscal year 1880, there were 
in operation 2,102 national banks ; during that year, they paid 
the United States in taxes, $7,591,770, and had paid in all 
from the first till that date $100,361,400 in national taxes ; 
and yet, these bankers, making more money than any other 
class of business men, and paying under the central govern- 
ment relatively lighter taxes than any other class of buyers 
and sellers, made in the decade ending in 1883 more com- 
plaint of taxes and more persistent efforts to be rid of them 
than any other class of men. There were outstanding Nov. 
1, 1881, $300,311,2.30 of national bank bills, $340,681,016 
of greenbacks, $562, ";G8, 971 of gold coin, and 8186, 037. .".65 
of silver coin, an aggregate of $1,455, 631, 602. l 

Originally the total amount of bank-bills authorized to be 
issued was 6300,000,000, but this limit was extended in 1870 
to $354,000,000, and the act of 1875 removed all restric- 
tions on the aggregate amount of bank-bills, though there 
are restrictions on the amount that any one bank may bsue. 
The laws of LS74 and 1882 made it easy for any national 
bank desiring to withdraw in part or in whole its bills from 

1 Report Comptroller Knox, 1881. 



110 POLITICAL ECONOMY. 

circulation to deposit lawful money in the treasury in order 
to take up the bills, and then to take back the proportionate 
amount of the bonds held for their security. This was in 
hopes the volume of the money would wax and wane accord- 
ing to the varying demands of business. No bank can issue 
in bills over 90% of the par value of the bonds deposited to 
secure the bills ; and, since 1882, national banks having a 
capital stock of $150,000, or less, are not required to deposit 
bonds with the Treasurer in excess of one-fourth of such 
stock as security for their bills. The law of the same year 
made provision for the easy extension of the charter of any 
national bank for a second period of 20 years, authorized 
the issue of 3% bonds of the United States to serve as a 
basis for national banking, and permitted the deposit in the 
treasury of gold coin in sums not less than $20 and the issue 
therefor of certificates in denominations of that amount 
and upwards corresponding with the higher denominations 
of greenbacks. 

Conceding the propriety of paper money, and looking at 
the national banking scheme solely at present as issuing it, 
several and considerable merits must be allowed to the plan, 
such as, (1) the publicity of the affairs of each bank and of 
all the banks within the system, since the comptroller pub- 
lishes from time to time the sworn statements of bank officers, 
the results of skilled examinations, in short every thing about 
the banks that the public wants to know ; (2) the certainty 
of the redemption of the bills, since a responsible third party 
holds in his hands ample funds for that purpose ; (3) the 
nationality and dignity of the bills, since they go freely 
wherever the flag floats, and the image and superscription 
of Caesar is really upon every bill ; (4) the relative flexi- 
bility of the volume of this money, and the ease with which 
worn and mutilated bills are ::eplaced by new ones ; (5) the 
society of the banks within the system, by which each is 
rationally interested in the good name and success of the 
rest, and in consequence of which a higher self-respect and 



MONET IN THE UNITED STATES. 411 

a more co-operative and conservative spirit tend to come to 
every bunker; and (6) the community of their money in its 
origin and nature as between the distant and different States 
and peoples is a bond binding them together and neutralizing 
in part the centrifugal forces always at work in large societies 
of men. 

On the other side, there are some pretty strong objections 
to this mode of issuing paper money, such as, (1) the basis 
of it all presupposes a national debt, which the people do 
not regard as a blessing, and which, so far as it is paid off 
as it ought to be, destroys the foundation on which this money 
rests : (2) the issuing of the money is mixed up with other 
tilings incongruous ivith it, since the bank that issues also 
in deposits, pays cheques, discounts notes, and buys and 
sells debts generally, which is the true business of a banker ; 
and (3) it looks invidious and at any rate gives rise to hard 
thoughts to grant to one small class of men the privilege of 
issuing for their oicn profit a part of the national money. 
More or less ill-will among the people towards the national 
banks, and jealousy of their great influence over congres- 
sional legislation, have been an open secret for many years ; 
and the last sentence uncovers the main root of these hostile 
feelings. Shall we say, then, that the privilege of issue 
should be taken from the national banks? That is a hard 
question. Shall we say, that, if there is to be paper money, 
it is better that the government issue it directly like the 
greenbacks? That is another hard question. Objections 
arc easy to both modes, and indeed to any mode of putting 
out paper money ; but both modes are now in operation, and 
in all likelihood will be for a long time to come. Congress 
has forbidden the contraction of the volume of the green- 
backs; the national banks have obtained an extension of 
their charters for twenty years ; silver certificates issued 
dollar for dollar on silver coin deposited by individuals and 
reserved intact by the Treasury are in the hands of the 
people ; and gold certificates of a like description to be re- 



412 POLITICAL ECONOMY. 

deemed in gold coin, as the others in silver, which seems to 
be the best possible form of paper money, and which makes 
up four kinds in all, were legalized in 1882. 

A few statements will now review and condense the points 
of this chapter : — 

1. The colonists had a notion that they could not afford to 
use sterling money, and also that a worse money drives out a 
better; and this double hey opens most of the mysteries of 
colonial moneys. 

2. The old pine-tree coinage of Massachusetts is at once 
historically interesting and scientifically instructive. 

3. The strength and the weakness of Credit are illustrated 
at once in the old bills whether of the colonies or of the Conti- 
nent. 

4. The experiences of the Confederation, and especially the 
establishment of a new Government, furnished our first finan- 
ciers their splendid opportunities. 

5. Our Banking owes most to Morris, our Coining to 
Jefferson, and our Funding to Hamilton. 

6. The single standard of gold, and the subsidiary silver 
pieces, both date from 1853. 

7. New York furnished the model, and Secretary Chase 
became the manipulator, of the national bank system. 

8. Recent experiments in legal tender, in bimetallic and 
other coinage, and in new forms of paper money , promise to 
enrich with wisdom the studious Future. 



CREDIT. 413 



CHAPTER XI. 

CKEDIT. 

Political Economy is the Science of Sales. Because it is 
the science of sales, its definitions and principles must cover 
equally all cases of sales actually occurring or possible to 
occur. "We have seen fully, that there are only three kinds 
of things that are ever bought and sold, or ever will be, and 
these are Commodities and Services and Claims. The first 
two kinds have been completely elucidated already, and it 
belongs to the present chapter to explain clearly and illustrate 
fully the peculiarities of the third kind. Our science has to 
do with the motives and facts and economic results of all 
sales whatsoever. 

Some sales or exchanges are consummated at once, that 
is, the things exchanged and the ownership in them are 
mutually passed o.ver then and there, the reciprocal satisfac- 
tions are entered upon immediately, and there is an econom- 
ical end. For example, one neighbor sells another a peck 
of green pease and takes in pay a peck of new potatoes, both 
vegetables are cooked for dinner in the respective families 
the same day, and the transaction is all over. But there are 
other exchanges which have this peculiarity, that the trans- 
action is not then and there ultimately closed, but one (or 
both) of the parties exchanging relies on the good faith 
of somebody to fulfil in the future a promise expressly or 
impliedly made in the exchange. Commonly some evidence 
of the promise is created and passed at the time. For exam- 
ple, A buys 50 bushels of wheat of B, and B takes in pay 
A's note at six mouths for §75. Considered as a mere case 



414 POLITICAL ECONOMY. 

of value created and measured, this transaction might be 
said to be ended, and in one sense it is ended ; but, consid- 
ered as to the nature of that exchange which requires another 
exchange to complete it, the transaction is not 3'et ended, and 
Political Economy must follow it in its principles to the end, 
because the further exchange or sale was contemplated by 
B as a part of his motive for taking A's note as an equiva- 
lent for the wheat. The right to demand a future equivalent 
of that was the present equivalent for the sake of which the 
wheat was rendered by B. It was therefore a clear case of 
value, since each rendered the other satisfactory equivalents, 
and all our definitions apply here perfectly. 

This peculiarity thus sketched in outline is vastly impor- 
tant to be considered, and gives rise to all the phenomena 
that pass under the general name of Credit. There are two 
essential features of this peculiarity. One is, that it always 
involves future time; and the other is, that it always involves 
confidence in Persons as such. The term credit is derived 
from Credo, / believe, and the corresponding debt from 
Debeo, I owe. Thus the personal element and the future 
element are wrapt up in the very origin of the words. There 
is no debt without credit, and there is no credit without debt. 
The words imply a belief 'of one of the parties in a virtual prom- 
ise made by the other, and an obligation acknowledged by 
one party as due to the other. Credit, then, may be defined 
as a Right to demand something of somebody ; and Debt, as 
an Obligation to pay something to somebody. What lies, ac- 
cordingly, between creditors and debtors, are Bights coupled 
with Obligations ; and these are Property, since they may be, 
and often are, bought and sold. It is these Bights or Claims, 
that become the subject of a commerce immense in extent 
and amount, and that take their place on an equality with 
tangible Commodities and personal Services. 

Macleod, who has cast fresh light on the nature of Credit, 
makes a distinction that lies on the threshold of the subject, 
namely, that between paper documents conveying titles to 



CREDIT. 4 15 

specific tilings, such as a bill of lading, and those conveying 
credit rights, such as a bank note. Both kinds are trans- 
ferable at will, but the former go with the goods, are a title 
to the goods, au-.l have no value separate from the goods; 
while the latter have nothing to do with any specific pieces 
of property whatever, are in no proper sense a title to any 
tliiu j, but are a general claim for something upon some person 
that awaits his action for its validity. For example, a Chicago 
grain-dealer sells 1,000 bushels of No. 2 wheat to a party in 
New York, and ships the grain to that point : two kinds of 
papers arise in the transaction very diverse in their nature : 
one is a bill of lading, that goes along with the goods and 
gives the person named a complete title to 1,000 bushels of 
wheat of a certain description, and the holder of the bill 
has the wheat and asks no favors ; and the other is a bill of 
exchange, drawn by the creditor in Chicago on his debtor in 
New York to be sold to a banker, provided the latter has 
confidence in the two former and a motive in the shape of a 
discouut for buying the bill : the bill of lading has neither 
element of credit in it, and the bill of exchange has both 
of them. For another example, if a man takes a package of 
valuables of any kind to his banker, and asks him to take 
care of it, and return it to him or any one else on demand, 
no property in the valuables passes over to the banker, the 
relation of debtor and creditor does not arise, the banker 
becomes the Trustee or Bailee of the package, but in no sense 
its owner ; but if, in the ordinary case, a customer d< 
money with his banker, the property in that money passes 
over absolutely to the banker, the relation of debtor and 
creditor arises, the depositor receives a credit in lieu of his 
money, that is, a right to demand in the future: the nature 
of the transaction in the two cases is quite different. 

As this distinction is vital, we shall lose nothing in the 
end if we take even a third example: — The United States 
Treasury receives silver dollars from any person who chooses 
to place them there, and gives out what are called "silver 



416 POLITICAL ECONOMY, 

certificates " to the same amount entitling the bearer to take 
out the dollars again at will, and the certificates become a 
part of the money of the country. The Treasury is bound 
to exercise due care in the keeping of these silver coins, and 
to return them to the holders of certificates on demand, just 
as the elevator and railroad companies are under legal obli- 
gations to show diligence in keeping and transporting the 
wheat of our former example ; but the United States is not 
debtor to the holders of these certificates any more than the 
elevator company is debtor to the wheat-shippers, and conse- 
quently there is no element of Credit in these certificates. 
Just so of the later gold certificates. On the other hand, the 
greenbacks issued by the United States are also a part of the 
money of the country, but they are credii-money, inasmuch 
as they are a promise to pay the bearer some time in the 
future so many dollars. The United States is debtor to the 
bearers, and these in turn are creditors, and the legal-tender 
quality of the greenbacks does not alter their character as a 
form of pure credit. Both the elements of good faith and of 
future time inhere in the greenbacks, as they do also in the 
bonds of the United States, while in the certificates they do 
not appear. 

This distinction between credit-rights and other rights is 
well maintained in the Latin language and in the Roman 
law, while corresponding English terms are ambiguous and 
need to be used with care. In Latin, a true debt is called a 
Mutuum, because it lies between two persons, a creditor and 
a debtor, and is a credit-right independently of the question 
of fact whether the debtor has now any thing to pay with or 
not ; but a thing merely lent, when the very thing lent is to 
be returned, is called in Latin a Commodatum. The English 
has but the one word Loan for two very distinct operations, 
for the loan of a book, for instance, which is to be returned, 
and which may be reclaimed if the owner chance to find it, 
Ihat is, the Latin commodatum; and for the loan of money 
or other measurable thing, which is to be returned in kind 



CREDIT. 417 

merely, which may not be reclaimed except through the action 
of the borrower, since the ownership of that thing has passed 
to him completely, that is, the Latin mutuum. The same 
ambiguity of course iuheres in the English word Borrow. 
Now, as a debt is a claim on a person aud not on a thing, 
the Roman law is true to the nature of thiugs and - to the 
vital distinctions of our science when it names the right to 
which a mutuum gives birth as a jus in personam, that is, a 
right against the person ; but it names the legal obligation 
arising out of a commodatum as a jus in re, that is, a right 
to the very thing. So strongly is this doctrine, namely, that 
the security of a true debt lies against the person and not 
against things, intrenched in the Roman law, that debts or 
credits are even called " nomina," names, — as when Ulpian 
says, " Nomina eorum qui sub conditione vel in diem debent 
et emere et veudere solemus. ' ' We are accustomed to buy 
and sell Debts payable on a certain day and at a certain 
event. The fundamental law of our present national banks 
explicitly recognizes this old distinction by requiring the 
banks to loan money on personal security only, that is to 
say, no tangible things — not even real estate — may be 
taken as original security for any loan. 

Now that we have learned exactly what Credit is, we are 
able to see clearly the reasons why it plays such a vast and 
increasing part in the ongoing of modern exchanges. If it 
were a convenience merely, making easier exchanges that 
would take place whether or no, it would even then be worthy 
of careful study ; but this is only a small part of it, credit 
not only convenes exchanges but also creates them, it brings 
in something new into the world of traffic, a new class of 
thiugs bought and sold, values that otherwise would not have 
existed at all, it enlarges the field of Political Economy, 
and makes a new grand division of time pay tribute to the 
world of sales. The Past is represented in commodities, the 
I'i'i sent in personal services, and the Future in credits. 
Sales accordingly are not shut up to the past and the present, 



418 POLITICAL ECONOMY. 

for the future is also open to them in a certain degree, which 
degree is marked by the limits of rational probability. The 
Future has within it comparative certainties, and it is safe 
commercially to build on these, and the name of that struc- 
ture is Credit. The chief Gain for individuals and for the 
whole community in the use of proper credit, and the grand 
reason why it never will be disused, are found in the fact 
that a new capital is thereby created, a new purchasing- 
power, something in the world of values additional to what 
existed before. This addition is not indeed unlimited, but 
it is actual and great ; not unlimited, because rational prob- 
abilities cannot pierce very far into the future ; but actual 
and great, because credit-rights to future products have a 
present and a ready value. The safe limitations of credit 
can be learned only from experience ; the dangers of credit 
arise from the uncertainties of the future, and the too san- 
guine temperaments of men ; but the property in credit, and 
the propriety of credit and the potency of credit are certain. 
At least 90 parts out of every 100 of the payments and 
receipts in modern commerce are in some form of credit 
rather than in any form of money; in this country between 
1862 and 1882 almost all commercial transactions were medi- 
ated either by pure credit or credit-money ; in Scotland, 
owing to their peculiar banking-system and " Cash Credits" 
to be explained pretty soon, coin plays an almost inapprecia- 
ble part in business transactions ; while even in England, 
where bank-notes for less than £5 are prohibited, it is esti- 
mated that not far from 95 % of commercial business is 
mediated by pure credit. 

It is but frank to state right he ? that most economists 
deny that any new capital is created through credit. They 
deny that the relation of debtor and creditor involves any 
thing more than an exchange between the two parties of 
certain titles to tangible goods. Thus J. H. Walker of Mas- 
sachusetts in a little book on Banking of 1882 says : — " A 
man ahoays borrows something of intrinsic value. What he 



CREDIT. 419 

borrows is not a piece of paper, whatever may be on it, but 
a farm, a house, a factory, or a part of them; a store, a 
mine, or goods. No man can borrow or lend any thing else. 
Tlie borrower gets from the lender what puts him in possession 
of the thing he seeks, and it must be some one of these things." 
Agaiu : — " So with all money (except coin). It has no 
value in itself. It adds nothing to the capital of the world. 
It purports to be and is only a title to property, — a con- 
vert ient device for transferring the ownership of property." 
This author, though a banker, is led astray by the useless 
adjective "intrinsic," by a totally inadequate analysis of 
what is meant by "value," and by a narrow assumption 
that the onby objects bought or borrowed are corporeal 
"things;" consequently, although he writes a book to do 
this, he cannot under his view properly explain the common 
facts of deposit banking in his own country, and would 
come to a dead standstill before the "Cash Credits" of 
Scotland. Bonamy Price of Oxford is a professed econo- 
mist, and a teacher of acknowledged ability : let us hear him 
also: — " Omitting the capital which a joint-stock company 
puts into a bank, the banker possesses no capital, except his 
premises and any coin that may be in them, however much 
commercial and monetary literature may ascribe capital to 
banks. Lines and names in ledgers, cheques at (he Clearing 
House, debts due to depositors, debts due upon bills by borrow- 
ers, are neither wealth nor capital. They are words and noth- 
ing more. Incorporeal property, under which these kinds of 
uritten words have been summed up, is not wealth; it is mere- 
ly a collection of title-deeds, but from which the reality is ab- 
sent. TJie corpus is not in those deeds, but the right to acquire 
that property, even before possession is obtained, is itself a 
property. If a title-deed or a mortgage is dc 7 ared to be 
actual wealth by Political Economy, then the sooner it is con- 
signed to the waste-basket the better." l 

This last passage shows how the word " wealth " tangles 

> Practical Political Economy, 1877, p. 452. 



420 POLITICAL ECONOMY. 

men up inextricably who by discarding it would become cleai 
thinkers. Professor Price himself with great good sense has 
given up the attempt to build up a Science on that uncle- 
finable and abominable word, and so entitles his new book 
" Practical Political Economy." Nevertheless, the passage 
just quoted concedes the whole matter in present dispute, — 
" the right to acquire that property, even before possession is 
obtained, is itself a property, — - that is all that we -claim, 
namely, that rights are property, and that new rights, new 
property, a new capital, are created by Credit. Our Oxford 
friend is far too well informed to contend, that a cheque is 
4 ' the right to acquire possession ' ' of any specific property 
whatever ; and must admit that it is a general claim on the 
banker, and not on any special fund in the banker's hands ; 
it follows, therefore, that the excess of the banker's average 
deposits over his average reserves to secure them, is a new 
creation of Credit, a new resource of Production, a purchas- 
ing-power now available to the banker not previously and 
practically available to anybody. 

It is a comfort to be able to quote against the current and 
superficial view, that credit-claims are mere titles to tangible 
things, the weighty words of the Roman Law laid down 
fourteen centuries ago : — " Some valuable things are corpo- 
real, and others incorporeal. Things incorporeal are those 
ivhicJi cannot be touched, such as those which consist in mere 
rights, as an inheritance, a usufruct, uses, and all obligations 
however contracted. Nor is it any objection that corporeal 
things are contained in an inheritance ; but the right of in- 
heritance, and the right of using and enjoying, and the right 
of the obligation are incorporeal." It is also a pleasure to 
be able to state as a fact, in opposition to the view that 
banks are handling in their credit paper of all sorts just the 
titles of goods and chattels then and there changing hands, 
that it often happens in those seasons of the year when 
goods and chattels are moving least that the banks are han- 
dling most of cheques and bills and other forms of credit. 



CREDIT. 421 

A credit-right i3 commonly, but not always, recorded upon 
paper ; but the paper is the evidence of the right, and not 
the right itself. These paper instruments of Credit are of 
two kinds, Promises to pay. and Orders to pay ; and we will 
lirst look at these principal forms of Credit in order, and 
then at some further advantages and disadvantages of 
Credit itself. 

1. Book Accounts. A charge in a trader's books is both 
a current and a legal evidence that the person charged has 
received a certain service, and has virtually promised to 
render the sum charged as a return service. This is the 
most common of the forms of credit ; and if the person 
charged fails of his own accord to complete the exchange 
thus commenced, the law, in the absence of any proof to 
make the charge suspicious, collects it, if possible, and for- 
cibly completes the exchange. The convenience of this form 
of credit is so great that it is not likely ever to be disused ; 
and as between people who deal much with each other is 
very useful, inasmuch as their respective book accounts are 
set against each other in settlement, and only balances are 
required to be cancelled in money. It is for the benefit 
of both creditor and debtor, however, that such credits 
should be short in time, and such settlements frequent, since 
thus only does the creditor realize the gains of the ex- 
change, and the debtor keep fair his mercantile name. If 
it be difficult or impossible to follow strictly the excellent 
financial maxim, "Pay as you go," the next best thing to 
that is, " Go and pay." The gains of au exchange are 
lessened, or its terms become more onerous, just in pro- 
portion as delay in its completion is experienced or ex- 
pected. Book accounts are subject also to this disadvantage 
as compared with other forms of credit, that their Dumber 
and amount as agaiust any person are less likely to become 
publicly known, and therefore he is more likely to be trusted 
in this form by others beyond the point of his solvency and 
their safety. 



422 . POLITICAL ECONOMY. 

2. Promissory Notes on interest. These are issued Dy in- 
dividuals, corporations, and nations. If the principal be 
deemed secure, that is, if there be a thorough trust on the 
part of the holder in the maker of the note, and if the in- 
terest be promptly paid, the time of the payment of the 
principal becomes a matter of comparative indifference, be- 
cause the interest is compensation for delay, and is often 
the motive on the part of the holder for rendering that ser- 
vice of which the note is evidence. Indeed a long obliga- 
tion is commonly preferred to a short one, and bears a 
higher price. When a note is sold by the original holder 
it becomes payable to the purchaser, or to each subsequent 
purchaser in turn, and thus may run a devious round, may 
play a part in many commercial transactions, may be set off 
by the transient holder against a debt owed by him and thus 
cancel that, and when itself is cancelled by ultimate set-off 
or by any other mode of payment the last holder takes the 
return for the service originally rendered by the first holder. 
The promissory notes of individuals are frequently discount- 
ed by banks in a manner to be presently explained. These 
are always for short times, and are debts bought by banks 
on the personal security of the names upon the notes. The 
notes are founded on the relation of debtor and creditor, 
which is always a personal relation, and so differ in their 
nature from a mortgage, which is a qualified title to a specific 
piece of property, usually real estate. A note secured by a 
mortgage is, as it were, absorbed into the mortgage, and be- 
comes another thing from a common promissory note, or 
commercial paper, as it is called. A mortgage rests there- 
fore on other grounds than a commercial trust in the good 
fpith of a person. 

Corporations also issue promissory notes, and as such 
issuers become moral persons entitled to confidence accord- 
ing to the character and purposes of the individual corpora- 
tors and the financial means and methods of the corporation. 
Their short notes are often discounted by bankers on the 



CREDIT. 423 

same ground as the notes of individuals are discounted ; and 
their long-time obligations, commonly called Bonds, are 
bought and sold in the market like commodities. Most 
railroad bonds, of which immense quantities are in the 
markets of the world, rest back also for their security upon 
mortgages of the real estate of the corporations made over to 
the holders of the bonds, and thus differ from income bonds 
for whose payment the net income of the corporations is spe- 
cially pledged, and differ still more from simple bonds resting 
on personal security only. Certificates of /Stock in corpora- 
tions arc not credit documents at all, but are mere evidences 
of ownership, and are in that respect like deeds to land. 

States and Nations are moral persons, and as such issue 
promissory notes on interest, commonly called in this coun- 
try bonds and in Great Britain funds and in some countries 
stocks. These are pure credit. Nations give no mortgages. 
Yet they often borrow at a less rate of interest than individ- 
uals or corporations, as is seen in the fact that British con- 
sols bear but 3 % (though they have rarely sold at full par) , 
and in the fact that United States bonds at 3 °/ were worth a 
premium in 1882. The United States borrowed of its own 
citizens in 18G2-65, both inclusive, about $2,500,000,000 on 
bonds at different rates of interest and at different times of 
repayment: some bore gold interest at G%, government 
reserving the right to pay the principal five years and pledg- 
ing itself to pay it twenty years from date, and so these 
were called "Five-twenties;" others bore gold interest at 
5%, becoming payable at ten and demandable at foity 
years, and so were called "Ten-forties;" and still others 
bore greenback interest at 7 T 3 ^j%, the principal payable in 
greenbacks at three years, or fuudable in gold sixes, at the 
option of the holders, and these were named "Seven-thir- 
ties." Over $90,000,000 of this last kind, of bonds were 
subscribed for by the American people in the course of a 
single week in the spring of 18G5. The whole of our national 
debt issued prior to 18G5 was made payable on a day cer- 



424 POLITICAL ECONOMY. 

tain ; the so-called consols of 1865 and 1867 and 1868 were 
payable not more than forty years from date ; while all the 
bonds authorized from 1870 to 1882 were Consols proper, 
whose peculiarity is, that they never fall clue so as to be- 
come a claim for the principal against the government, but 
after a day fixed or on a condition fixed are pajsble " at the 
pleasure of the United States." The term " con. iols " is a 
contraction of "consolidated annuities," the act to create 
which at 3 % out of a confused mass of public debts passed 
the English Parliament in 1757. 

The separate States of our Union issue their own bonds 
for various purposes, the partial or entire repudiation of which 
at different times on the part of several of the States has 
justly damaged their credit, and even the good name of the 
whole people of the United States. 

3. Bank Bills. These are a form of promissory notes not 
on interest, and thus differ from the notes of ordinary cor- 
porations , but the bank offers, as a sort of compensation 
for the privilege of circulating notes not on interest, to 
convert them into coin on demand of any holder. It is this 
proffered convertibility into coin that enables the promissory 
notes of a bank to circulate as money, while the notes of 
other corporations and individuals equally solid and solvent 
do not circulate as money. It must be borne in mind, how- 
ever, that the offer to convert them into cash does not essen- 
tially alter the nature of bank-notes ; they are a form of 
credit ; and although they are commonly issued against 
another form of credit, namely, against the interest-bearing 
notes of individuals who resort to the bank for discount, 
this only complicates the exchange without changing its 
nature. It is an instance of exchanging one form of credit 
for another which happens to have a greater currency or 
validity than the first, and for this superiority of the bank 
credit the indivilual credit pays an interest, in other words, 
is discounted ; and such exchanges of one form of papel 
credit for another with or without a premium, may go on 



CREDIT. 425 

Indefinitely ; as credit money, such paper may serve as a 
medium iu many exchanges ; but ultimately, and before the 
cutire series of transactions is closed, such paper is to be 
redeemed in coin, or taken in by the banker in payment of 
some debt due to him, in both which cases it is extinguished 
as an instrument of credit. 

The Bank of England keeps out in circulation on the aver- 
age £25,000,000. It has been computed that the average 
length of life of a Bank of England bill between issue and 
redemption is about three days. The joint-stock and private 
banks of England and Wales circulate besides rather more 
than £4,000,000 of bills. No bank bill is legal in England 
and Wales for less than £5. The ten Scotch banks and their 
branches put out in bills about £5,000,000 on the average ; 
six out of the nine Irish banks and their branches issue 
perhaps twice as much as the Scotch banks ; and both arc 
allowed to put out £1 bills. The associated national banks 
of the United States (no others can issue bills in thi3 coun- 
try) owed the people in that form $300,000,000 in 1882. 

4. Bank Deposits. Here we must go carefully. "We have 
now come to the central function of Banking, and this is the 
place to understand clearly both what a Bank is and who a 
Banker is. The word " bank " meant originally a mass, an 
accumulation, — as we still say, a sand-bank, and the banks 
of a river. When first applied to commercial transactions, 
the word had a somewhat different meaning from what it has 
at present, although the idea of credit has inhered in it from 
the first. In 1171, the Republic of Venice, being at war, 
ordered a forced loan from its citizens, and agreed to pay 
interest on it at b°/ . Certificates were issued for the sums 
paid in, and public commissioners were appointed to manage 
the payment of the interest and the transfers of the certifi- 
cates, which were made salable. The Italian word applied 
to such a public loan is monte, but as the Germans were then 
strong in Italy, the Teutonic equivalent bank came to be used 
alongside of it and instead of it. It meant this common 



426 POLITICAL ECONOMY. 

contribution to the wants of the state, represented by the 
mass of certificates, and came to be applied also to tbe place 
where the commissioners paid the interest and transferred 
the shares. Two other such loans were contracted after- 
wards, "and an English writer in 1646, quoted by Macleod, 
speaks of the "three bankes of Venice," meaning these 
three public debts, including the evidences of them and the 
place where they were managed. 

"We have already seen, that the Bank of England was an 
incorporation of those persons willing to subscribe to a 
public loan. In ten days the list of subscribers was full. 
£1,200,000 were advanced by them to the government, and 
they received, besides the interest on their loan, certain privi- 
leges as a Company, on which they and their successors have 
been operating ever since. This was the beginning of the 
national debt of England ; and a new source of power revealed 
itself in the discovery of the resources of the national credit ; 
from that day to this all public loans are negotiated and 
managed through the Bank of England ; and the legal name 
of the British Funds is, " Bank Annuities." In one word, 
the Bank of England is a debt, with certain other functions 
connected with its management ; and secondarily, as before, 
the building or place where its operations are conducted. Just 
so, the first Bank of the United States was really an incor- 
poration of persons who held the then new government stock. 
Three-fourths of the subscription of individuals to the bank 
stock must be in government stocks. Our Funding system 
and our Banking system started together : Hamilton was the 
author of both. Thus the word "bank" had originally no 
connection with paper money, but only with the evidences 
of a public debt ; the Bank of England had and has to do 
with both these forms of credit ; before the Revolutionary 
war, the word meant in this country a batch of paper money 
issued by a government or a corporation ; since Hamilton's 
time, it has meant both other operations in credit and the 
issuing of paper money ; while the present tendency of 



CREDIT. 427 

language in this and other countries is to confine the word 
"bank" to the buying and selling of credits other than 
paper money. The whole history of the word connects it 
with credits, but not necessarily with credit-money . "We arc 
now ready for definitions. 

A Bank is an institution for the creation, management, 
and extinction of Ckedits. Money of any kind plays a 
very subordinate part in the general operation of banks, 
which live and move and have their being in pure credits. 
Consequentry, Bankers are dealers in credits. As a merchant 
is a buyer and seller of commodities, so a banker is a buyer 
and seller of credits, buying, (1) some credits with other 
credits, (2) some credits with money, and (3) money also 
with credits. As merchants begin by laying in stocks of 
goods of the kinds they purpose to deal in and offering 
them for sale, so bankers begin by bringing together money 
and credits of their own in order to attract to themselves in 
the way of buying and selling the money and credits of other 
people. In order to deal successfully in credits the banker 
must have credit, that is, he must have the reputation of hav- 
ing property of his own, and of being an honest and careful 
manager of his own affairs and of the affairs of others so 
far as they are intrusted to him. Most bankers become 
known owners of public stocks, and in many cases are re- 
quired to own such stocks, and this gives them a kind of 
credit scarcely to be reached by the ownership of ordinal y 
property. Thus, the Bank of England holds £15,000,000 
of public securities; and each one of the national banks of 
this country is required to own not less than $30,000 of its 
capital stock in the bonds of the United States, though no 
hank is now required to hold more than 850,000 in this 
form. Each of these banks must also have a paid-up capital 
of not less than 8100,000, and in cities of 50,000 people 
their capital must not be less than $200,000 each, except 
that in places having less than 0,000 inhabitants banks with 
not less than $50,000 capital may be organized at the discre- 



428 POLITICAL ECONOMY. 

tion of the Secretary of the Treasury. The main purpose 
of all this is to secure strong organizations fitted to draw 
the confidence of the communities in which they are placed 
and to attract the Deposits of the people to the banks. 

Now, as was just said, the central function in banking is 
for the banker to receive his customer's money and credits 
becoming due, and to render in return for these a credit, 
that is, a right to demand from him an equal sum at a future 
time. The evidence of this right is entered on the banker's 
books, and thus becomes a Deposit. The ownership of the 
money and of the credits deposited passes over completely 
from the customer to the banker. The latter has the right to 
do just what he pleases with them ; only his entry of the trans- 
action in his books is a virtual promise to pay that amount 
on demand to the customer, and he must be ready to respond 
to his customer's call, whenever the latter demands, not his 
own money, but so much of his banker's money. A deposit, 
therefore, is not the thing deposited, but a credit. It is the 
depositor's property and the banker's promise. It is in this 
way that a banker buys money with credit. The motive that 
leads the customer to intrust his money to the banker is the 
desire, not to have that specific money kept safely, but to have 
the right to call on the banker for such sums (not to exceed 
the deposit in the aggregate) and at such times as may suit 
his own convenience. He has such confidence in the integrity 
and solvency of the banker, and finds it so practically con- 
venient to have dealings with him, that he prefers a credit on 
him for the amount to the possession of the money itself. 
The motive of the banker to receive his customers' funds on 
these terms is the fact that he can safely use a large portion 
of these funds in other operations in credit profitable to him- 
self, and at the same time be sure of being able to meet his 
customers' calls for money. He finds by experience that 
many of his customers wish always to have a balance in his 
hands ; that while some of them are constantly drawing on 
him for cash, others of them are as constantly depositing 



CREDIT. 429 

with him in cash, and that consequently he can use with 
safety a part of the mouey he has purchased with his credit 
to purchase other credits with. 

Deposit-banking, accordingly, is not only convenient and 
safe for the depositor, but also profitable for the banker, and 
also a great gain for the community at large ; inasmuch as a 
new capital has been thereby created, new values which could 
not otherwise have existed at all. Were there no deposit- 
bank, every man now a customer of it would keep his own 
reserves by himself for contingencies : now these reserves 
are all aggregated in the bank, and the banker finds that he 
can use, say two-thirds of the whole, and still answer every 
customer's call. It is abstractly possible that a banker might 
be called upon to pay all his deposit-liabilities at once, which 
would break him of course ; so it is abstractly possible that 
all the lives insured in a Life Insurance Company might ter- 
minate in one day, in which case no company in the world 
could meet its obligations ; aud so it is abstractly possible 
that all the houses insured in a Fire Insurance Company 
might be burned up in a single night, which would cause the 
collapse of the soundest company ; but in all these cases of 
possibility, there is a certainty that the possibility will not 
become a fact. If a banker misjudges for his locality the 
ratio of reserves to deposits, he must sell some of the securi- 
ties bought with the excess, or borrow money on them. 

Surprisingly large is the amount of bank deposits in the 
leading commercial nations of the world. The average pub- 
lic and private deposits of the Bank of England, on which 
no interest is paid by the Bank, reaches about £40,000,000. 
The ten joint-stock banks of London have about £80,000,000 
in private deposits, of which those to remain some time take 
an interest, but those lodged on current accounts and on call 
take none. Scotland has carried deposit-banking further and 
to greater advantage than any other country in the world. 
There are now no private banks, but the ten joint-stock 
banks with their numerous branches scattered to every vil- 



430 POLITICAL ECONOMY. 

lage in the land hold about £70,000,000 in constant deposit, 
on which interest is allowed, and the habit of keeping one's 
account with a banker is universal with the people. No one 
thinks of keeping money to any amount in his house or about 
his person, and consequently house-breaking and highway 
robbery have almost ceased. Bankers even attend all the 
great fairs to receive deposits and pay cheques. Credit both 
in this form and in another soon to be described treads its 
utmost verge in Scotland. Although the custom of keeping 
deposits with bankers and drawing cheques against thern has 
not gone nearly so far in this country as in Scotland, yet the 
aggregate of individual deposits in the national banks alone, 
Oct. 1, 1881, was $1,070,997,531 (Knox). It is evident, 
that wherever deposit-banking prevails, and to the degree in 
which it prevails, less money is required to effect the exchanges 
of the people. 

5. Bank Discounts. The paper that is discounted by 
bankers may be either the promissory notes already charac- 
terized, or the bills of exchange soon to be characterized, 
but the function of discount is so peculiar that the paper 
subjected to it must be separately enumerated in a classifi- 
cation of the instruments of credit. The discounting of 
paper is the second essential function of banking ; and it is 
more in accordance with genuine banlcing to pass the price 
of the paper to the seller's credit in the form of a deposit, 
that is, to buy one credit by creating another, than to pay 
the money over at once, and thus buy credits with money. 
Those who do the latter are called in England bill-discount- 
ers rather than bankers, but most of our bankers do both, 
though there is a strong tendency towards the separation of 
the two in this country also. Manufacturers and wholesale 
merchants usually sell goods on time, as it is called, say 
three months. A debt is thus created. The manufacturer 
or wholesaler is creditor and the jobber or retailer is debtor. 
But a debt is property ; and the creditor in this case wishes 
to avail himself of his property at once for further produc 



CREDIT. 431 

tiou ; so he either takes a note from his debtor, or draws a 
bill upon him, and this piece of property is ready for sale. 
The banker buys it, that is to say, the creditor passes over 
to him the right to demand payment of the debtor at the end 
of three months, and receives from the banker either money 
or so much of the banker's credit, that is, a deposit in the 
creditor's favor on the banker's books. For furnishing this 
creditor either with ready money or a more available credit 
in lieu of his mercantile paper, the banker charges a percent- 
age. This is discount. Discount is the difference between 
the face and the price of the paper. This is the chief source 
of profit in ordinary banking. When the paper matures, the 
banker realizes from the debtor its full face. The following 
is the form of a bankable note : — 



S1 ' 000, North Adams, Mass., Nov. 10, 1882. 

Three months after date I promise to pay to the order of 

Josiiua Swan, one thousand dollars, payable at the Adams 

National Bank, value received. 

LEANDER ALLEN. 
Due Feb. 10 /is- 



Swan may put his name on the back of this note, and 
then it is discounted on the strength of the two names, 
Allen and Swan. It is expected that Allen will pay the 
note to the bank when due; but if he does not, then Swan 
is bound for the amount. Two names are almost always, 
not always, requisite to an acceptable note for discount ; 
and more names merely strengthen the note, since it is dis- 
counted on the combined validity of all the names upon it. 
The chief advantage in Discount is, that it tends to make 
all capital active and thus productive. It enables the banks 
to sell their credit and make a gain, or to use a part of their 
money deposits to buy mercantile paper with and get an 



432 POLITICAL ECONOMY. 

interest ; it enables the dealers in commodities to realize at 
once on what they have sold on time minus the discount ; 
and by means of accommodation notes or bills, which only 
differ from others in that there is no actual debt between the 
parties, some men may swell the volume of their business 
temporarily. The discount line of the 2,132 national banks 
Oct. 1, 1881, was $1,169,022,303 (Knox). Bankers have 
not always credit enough or money of depositors enough to 
buy in either mode all the mercantile paper that is offered, in 
which case, they raise the rate of discount unless the law for- 
bids, or accommodate regular customers and depositors first, 
or buy of all who are " good " a certain proportion only 

It is thus in part through the purchase of discountable 
notes for money that banks derive their character as money- 
lenders. Also, such reserve sums as they do not wish to 
invest in negotiable paper, on account of the time involved 
before such paper matures, banks frequently loan on call to 
those who have salable collateral securities to pledge. So 
far forth they become direct money-lenders. The following 
is the form of such pledge : — 



$5,000. 



Troy, N.Y., Nov. 10, 1882. 



On demand we promise to pay to the Bank of Troy, or 
order, five thousand dollars, for value received, with interest at 
the rate of six per cent per annum, having deposited with said 
bank, as collateral security, with authority to sell the same, at the 
Brokers' Board, or at public or private sale, or otherwise at said 
bank's option, on the non-performance of this promise, and with- 
out notice, — 

10 shares N. Y. Central, 

55 do. Mich. Southern. 

JOHN SMITH & CO. 



6. Bills of Exchange. So far we have been looking at 
promises to pay, and will now look at orders to pay, but 
there is practically very little difference between them. A 
bill of exchange is a written instrument designed to secure 



CREDIT. 433 

the payment of a distant debt without the transmission of 
money, being in effect a setting off or exchange of one debt 
against another. Thus, suppose A in Boston owes B in 
New York §1,000, and another party, C in New York, owes 
A in Boston a like sum ; it is not necessary that A should 
send the money to B to cancel his debt, and C send the 
money to A for a like purpose ; the two debts, by means of 
a bill of exchange, are set off against each other, and both 
transactions are closed without sending any money from one 
city to the other. A draws a bill upon C, directing him to 
pay 1> Si, 000, and sends this bill to B, who, if the bill be 
drawn on sight, preseuts it to C for payment ; if on time, 
presents it to C for acceptance, who then pays it at maturity. 
An acceptance is written upon the face of a bill, as an 
indorsement is upon its back. A is called the drawer of 
the bill, C the drawee until he has accepted, and then the 
acceptor, and B is the payee. It is not often that the same 
person, as A, happens to owe another person in a distant 
place, as B, exactly the same sum as is owed him in that 
place by a third person, as C ; but by two bills of exchange, 
one drawn by each creditor on his own debtor, and then set 
off against the other, substantially the same advantage is 
reached as if it always happened so. Nearly all these bills 
come into banks in the way of ordinary business, either for 
discount or collection, and are adjusted through bank bal- 
ances. The following is the form of an inland bill of 
exchange : — 



$3,000. 




Pittsfield, Mass., Oct. 1 


1882. 


Four months after date pay to the order of John Kent 


three thousand 


dollars, 


value received, and charge the same to 


account of 












DAN STORRS 


& CO. 


To Eli Tripp 


Boston 


, Mass. 





434 POLITICAL ECONOMY. 

In this case, Kent may indorse, which is a sign that he 
sells his right in the bill ; Tripp accepts, which is a pledge 
that he will pay the sum to the holder when the bill is due ; 
and the banker or other buyer steps into all the original 
right of Kent, whose claim lay against Storrs & Co. and 
Tripp. The drawer of a bill is always creditor, the acceptor 
is always debtor, and the payee again is creditor. A bill of 
exchange is the formal sale of a debt. The claimant passes 
oyer for value received his claim on a second person to a 
third person, who thus becomes for the time being owner of 
the debt. He can indorse this claim over to a fourth per- 
son, or by an indorsement in blank, as it is called, that is, 
by merely writing his name upon the back of the bill, he can 
make it payable to bearer. If time bills are discounted, it is 
on the joint credit of drawer and acceptor. Besides their 
convenience in settling debts between distant places without 
the costly transmission of money, and besides their useful 
function of enabling a debt due from one person to avail 
the creditor for obtaining credit from a third person in dis- 
count, it is plain, that the common use of bills of exchange 
in all their forms releases from use large amounts of money 
that would otherwise be needful in trade. The less money 
in use the better, because, if coin, it costs much to mint 
and maintain it, and if paper, it is difficult to make and sus- 
tain it. Bankers sometimes charge what they call "ex- 
change ' ' for settling debts between distant places in the 
same country, when one place, say Chicago, draws more 
bills on another place, say New York, than suffice to cancel 
the bills drawn at that time by New York on Chicago ; the 
poiut at which the larger indebtedness lies is the point for 
sending drafts to which banks naturally charge a percentage ; 
this is the principle working all the time in inland exchange, 
as we shall see in a moment that it works in foreign ex- 
change also ; but there is a principle counterworking this 
and often neutralizing it entirely, namely, that the chief 
settling place and commercial centre of a country, as New 



CREDIT. 435 

York, draws towards itself from the whole circuit with such 
force, everybody wanting a balance there and having occa- 
sion to send funds thither, that drafts on such a place are 
apt to bear a premium without reference to its comparative 
indebtedness at the time. 

Very similar to these inland bills in their general course 
and usefulness are foreign bills of exchange, which, as an 
important topic, we must now study with care. Commercial 
relations between two countries, say for example, France 
and England, always give rise to a mutual indebteduess of 
their merchants, and if these debts were all to be paid by the 
actual sending of money to and from, there would have to 
be a constant and expensive outward and inward flow of the 
precious metals in respect to each country, which necessity 
is neatly obviated by the use of bills of exchange, and coin 
is only transmitted to settle the balances on whichever side 
there is an excess of debt. French dealers are alwaj-s send- 
ing goods to England, and English dealers goods to France ; 
and for what they send to England the French merchants draw 
bills on the parties to whom the goods are consigned, and 
the English merchants draw similar bills on their debtors in 
France ; these bills are bought up by bankers or brokers 
\n either country, and exposed again for sale to any parties 
who may have debts to pay in the other country. Thus bills 
on London, in other words, on English debtors, are always 
for sale in France ; and bills on France, that is, on French 
debtors, are always for sale in London ; the mutual debtors 
of the two countries, therefore, instead of sending coin to 
cancel their debts, buy and transmit these bills. 

Suppose Pierre & Co., of Paris, send a cargo of wine to 
Barclay & Co., of London, worth £5,000 in English money ; 
the London firm therebj* becomes indebted to the Paris firm 
to that amount, and Pierre & Co. draw a bill in francs on 
Barclay & Co. for the equivalent of £5,000 ; if they them- 
selves have no debt to pay in London, the}* sell this bill to a 
Paris broker (if the exchange be then at par) for its face, 



436 POLITICAL ECONOMY. 

minus interest for the time it has to run ; and this broker ia 
now ready to sell the bill again to anybody in Paris who haa 
a debt to pay in London ; and the person in London who 
receives it in liquidation of a French debt to him, presents 
it at maturity to Barclay & Co. for payment. A bill drawn 
in London for a cargo of hardware sent to Paris, is similarly 
negotiated with a London broker, and finds its way similarly 
to France, in payment of some English debt, and ends its 
career when it reaches the French firm on which it was origi- 
nally drawn. We are now in position to understand clearly 
what is meant by the par of exchange. The merchants in 
Paris, who have debts due to them in London, draw bills 
of exchange for the amount of these debts, and, through the 
agencjr of middlemen or brokers, go into the market to sell 
these bills to other Paris merchants who have debts to pa}^ 
in London. If the former class have a larger amount to sell 
than the latter have occasion to buy, in other words, if there 
be a larger amount of debts due from London to Paris, than 
from Paris to London, then the competition of the sellers 
of bills on London will lower their price somewhat in the 
market, in order, as usual, that the supply and demand may 
be equalized. In this case the par of exchange is disturbed, 
a bill on London for £100 may not sell for over £99, and 
the exchange is then said to be 1% against London, or, 
which is the same thing, 1 % in favor of Paris. 

The par of exchange, therefore, between two countries, 
depends on the substantial equality of their mutual debts ; 
and if an exchange '•'•against" either continue long, and 
especially if the premium on its bills drawn be sufficient to 
cover the charges of the transmission of specie, gold will 
begin to flow from the country against which the exchange has 
turned, and the equilibrium of payments, and hence the par 
of exchange, will be restored. Also, the par tends to restore 
itself, without the sending of specie, in this way : if bills on 
London are at a discount in Paris, for the same reason that 
they are so will bills on Paris be at a premium in London, 



CREDIT. 437 

and therefore there will be a direct encour.igenient to the 
extent of the premium for exportations from England to 
France, because on every cargo sent bills can be drawn and 
sold in London for a premium ; but the more bills on Paris 
thus offered, the more the premium disappears, and the par of 
exchange is restored so soon as the debts thus contracted by 
France are equal to the debts due her from England. At the 
same time, and so long as the discount on London bills con- 
tinues, there is a discouragement to further exportations from 
Fiance to England, because the bills drawn in virtue of such 
cai-goes can only be sold below par. Here is another instance 
of a magnificently comprehensive law by which Nature vin- 
dicates her right to reign in the domain of exchange. It is 
through this law, stimulating exportations on the one side, 
and slackening them on the other, that most of the casual 
disturbances of the par of exchange are rectified ; but if, 
notwithstanding this, the disturbance continues obstinate, it 
indicates one of two things as true of the country against 
which the exchange has turned : it has either made over- 
purchases of the other country beyond the power of its ordi- 
nary exports to cancel, or the money in which the bills drawn 
on it are liable to be paid is an inferior money. In the first 
case, the only proper remedy is an export of gold to pay off 
the old scores, and a more prudent method of purchasing in 
the future ; in the second case, which is well exemplified in the 
instance of Amsterdam, cited in a preceding chapter, the 
remedy is to raise the money to the standard of the best. 

This leads us to say, that the term "par of exchange " is 
also used in another and subordinate sense, namely, as de- 
n^tiug the relative value of the coin of one nation in tho 
coin of another. Thus, our present dollar contains 23.22 
grains of pure gold; the English pound contains 113.001 
grains; consequently, there are 84.SGG5 to the £, and this 
is the "par of exchange," so far as monej' is concerned, 
between the United States and Great Britain. For the same 
reason, the "par of exchange" between the United States 



438 POLITICAL ECONOMY. 

and France is $1 to 5 francs and 18 centimes (very nearly). 
The franc is a little more than 19 £ cents. Now, if a com- 
mercial bill drawn on London sells in New York for $4.86 to 
the pound sterling, minus interest for the time it has to run, 
exchange is said to be at par ; if it sells for more than that, 
exchange is said to be against us ; and if it sells for less 
than that, exchange is said to be in our favor. 

These technical terms, "against" and in "favor," are 
quite misleading unless one remembers their origin and their 
exact meaning. The old Mercantile System, in order to 
keep and heap gold and silver in the countiy, encouraged 
exports in every way and discouraged imports - , that the 
"balance of trade," that is, the difference of volume between 
exports and imports, might come back in gold and silver ; and 
this foolish and now exploded notion gave rise to the terms 
in question : exchanges were said to be " against ' ' a country 
when the bills drawn on its exports were above par, as imply- 
ing that the exports were too great for a "balance," and 
were said to be " in favor " of a country when its bills were 
below par, as implying more exports and a favorable balance. 
As a matter of fact, very little, if any thing, can be inferred 
as to the prosperity of a country from the state of its tech- 
nical "exchanges;" one cannot tell at all, that exchanges 
"in favor" will bring in an influx of gold, because, while 
these indicate a present export of goods larger than the 
import of goods, the excess may be applied otherwise than in 
buying gold, as for instance, in paying interest on debts held 
abroad or in paying freights to foreigners ; for example, the 
exchanges were in favor of the United States in 1874-77, 
there being an apparent trade balance of $164,000,000 in 
1877 and a still larger in 1876 and a large one in tin two 
years preceding, but the import of specie was small in all 
those years, averaging about $25,000,000 a year, and the 
rest of the excess of exports went to pay foreign interest, 
freights both ways, and so on. No one has ever shown, or 
can show, that gold is any better in general as a return for 



CBEDIT. 439 

a balance than other commodities ; gold-producing countries, 
and countries into which gold has flowed in excess so as to 
carry up prices, find bullion their most advantageous export ' 
and often also the imports for which a nation pays in gold, 
or in bills above par, are bought with high profit. Exchanges 
are apt to rule "in favor" of countries, like the United 
States, whose national, State, or corporation bonds are 
largely held by foreigners, because both interest and princi- 
pal must sooner or later be remitted in exports, and whose 
public policy is restrictive of imports whether of goods or 
ships through what is falsely called ' ' protection ; ' ' and 
exchanges, were there no counterworking principle, would 
be "against" capitalist and hence creditor countries, like 
Great Britain, whose imports are apt to be strongby in excess 
of exports, and whose public policy is wise enough to put 
no obstacles in the way of the free receipt of the former. 

This counterworking principle, already illustrated in the 
case of New York, is best seen in connection with London, 
which is the settling-place of the world's commerce. When 
the Romans dredged the Thames and made " the pool " just 
below London Bridge, they took the first steps towards mak- 
ing that town a commercial centre ; a market for products 
is products in market, and the busy exchange of commodities 
there quickened in every age the accumulation of capital and 
the increase of population ; about 100 vessels now enter the 
port of London every day, which receives about one-half of 
the total customs revenue of the United Kingdom and sends 
out about one-fourth of its exports ; the business of out- 
of-way and semi-civilized countries has somehow centred 
there, as well as the business of original British colonies and 
all other commercial nations ; accordingly, debtors and credit- 
ors abound there, bills of exchange concentre there, and debts 
due everywhere are payable there; and therefore, because 
bills on Loudon are good all over the world, the demand fur 
them counterworks the natural cheapness of the bills drawn 
on exports thither as compared with the natural deamess o/ 



440 POLITICAL ECONOMY. 

the bills drawn there on exports thence. Another thing must 
be borne in mind in comparing the merchandise accounts of 
any country, namely, that when the " exchange " is sufficient 
to cover the cost and risk of the transmission of gold, that 
is likely to go freely from the country " against " which the 
exchanges have turned, and bills will be drawn upon that, as 
upon common merchandise, and sold for a premium ; or, if 
a decidedly higher rate of discount prevail in a neighboring 
land, gold will go out thither from lower-rate lands, because 
lenders in the latter will wish to realize the higher rate of 
interest, and bills will be drawn on this gold as well, but the 
home bankers can always stop a drain of this kind by raising 
their own rates of discount. 

This casual mention of bankers leads on to the weighty 
point, that the whole business of foreign exchange is falling 
more and more into the hands of the bankers, because bills 
drawn by and upon well-known bankers naturally have a 
better credit than ordinary commercial bills the names upon 
which are less widely and favorably known. Accordingly, 
persons sending cargoes of cotton, say, or of any other 
valuables, from New York to Liverpool, arrange with their 
bankers in New York to have the proceeds of the cargoes 
put to the bankers' credit in London, and then these bankers 
draw bills on the London bankers, which will bring a higher 
price in New York than a common commercial bill, because 
many remitters and most travellers prefer bankers' bills, 
vhich, though they cost more, pay better and buy better 
abroad. Commercial bills are still bought and sold in every 
commercial town, but bankers' bills are more and more tak- 
ing their place ; and the quotations usually give the current 
price of each. London is so prominent as the settling-place 
of the world's transactions by means of bills drawn on and 
by London bankers, partly on account of the commercial 
prominence of England, partly from excellent banking cus- 
toms there, and mainly because an immense mass of cheap 
loanable capital exists there, which even foreigners may 



CREDIT. 441 

borrow at London rates, provided only that they can get 
credit there, that is, leave to draw on a London banker, to 
whom of course remittances must be made as fast as he 
accepts their bills. Besides, the Bank of England, as the 
principal bank in Great Britain, and as closely connected 
with the government, acts as a bank of support to the 
public and private credit of that country. It does a regular 
business as a bank of deposits and discounts, but it means 
to keep its rate of discount above the rate demanded by 
other bankers in London, so as not to come into competition 
with them much in their ordinary business, and be able to 
act as a bank of support to them and all others in times of 
pressure. All banks have about so much credit to sell, and 
no more ; most banks sell in ordinary times about all the 
credit they have ; but if the Bank of England did this, it 
would be useless in times of panic. In fact, it begins to sell 
its reserve credit, when the credit of the bankers below is 
exhausted. When they are at the end of their rope, there 
is generally an abundance of slack rope still in the great 
institution above. Now, as gold can be drawn out of the 
Bank of England by the cheques of depositors as well as by 
the presentation of notes for redemption, the rate of dis- 
count becomes a matter of prime importance in the practical 
management of the Bank. The whole line of deposits is a 
line of liabilities to pay out gold, if the depositors demand 
it ; and, as deposits come largely through discounts, when- 
ever there is a strong tendency to draw out gold so as to 
weaken the reserves of the bank, the directors have an 
effectual remedy in raising the rate of discount. The higher 
the price the bank charges for its credit, the fewer, so far 
forth, will be its customers, and the smaller its line of 
deposits, and the less likely a continuous drain of gold from 
its vaults. The Bank of England is managed throughout by 
bo simple a matter as the turning back and forth of this 
magic screw of discount. 

The antiquity of banks and bills of exchange is verj 



442 POLITICAL ECONOMV. 

great. There are Babylonian tablets in the Metropolitan 
Museum of Art in New York, elated variously from 601 to 
505 B.C., many of them in the reign of Nebuchadnezzar, 
bearing distinct records of transactions in credit-banking. 
One of them is an account of a loan of money, having 79 
days to run, with a penal clause in case of non-fulfilment. 
Another states the exact amount of interest to be given for 
the use of the money. Some are obligations payable to 
a third party, and others with a guaranty to a third person. 
Still others were regular bills of exchange, that is, drafts 
drawn in one place and payable in another. These were 
evidently negotiable, but from the nature of the case could 
not pass by indorsement, because nothing new could be 
added when the clay tablets were once baked, and conse- 
quently the name of the payee is often omitted. The names 
of three or four witnesses usually accompany each docu- 
ment. It is reasonably supposed, that Egibi & Co., Baby- 
lonian bankers, were the first to distinguish themselves as 
such in the ancient world, as the Bothschilds have done in 
the modern world ; because, burnt clay documents in the 
British Museum, and some of those in the New York 
Museum, trace this family in banking transactions during 
a century and a half from the time of Sennacherib to the 
reign of Darius. 1 The West was quick to catch the modes 
of the East : Isocrates in his plea against the banker Pasion 
describes a formal bill of exchange bought by Stratocles in 
Athens, payable in Pontus, and guaranteed principal and 
interest by Pasion; Cicero writes to Atticus, "Let me 
know, if the money my son needs at Athens can be sent 
him by way of exchange or if it be necessary for it to- be 
taken to him, — permutarine possit in ipsi -ferendum sit;" 
and Jews and Lombards carried the letter of credit over the 
world. 

7. Cheques. These are indeed in substance bills of ex- 
change, but the two have such differing legal incidents, and 

1 See for particulars Article Bank in Lib. Univer. Knowledge, vol. ii. 



CREDIT. 443 

run so different a course towards extinguishment, that 
cheques may properly be put under a separate head. 
Cheques are drawn at sight on a banker, who thus becomes 
a drawee, a depositor with that banker is the drawer, and 
a person named in the cheque is the payee, who can indorse 
his right over to another or to bearer in blank. When a 
bill is drawn in this way by one banker upon another, it is 
usually called in this country a draft. Formerly in Eng- 
land, and in other countries as well, every considerable 
dealer kept his strong box, and when he had occasion to 
make payments, told down the solid cash upon his own 
counter. Afterwards, the goldsmiths of London solicited 
the honor of keeping in their vaults the spare cash of the 
merchants, who in their payments among one another came 
to employ cheques drawn on the goldsmiths, and at the shops 
of the latter the principal payments in coin were effected. 
The later introduction of banks brought along with it the 
custom, now continually widening in commercial countries 
among all classes of people, of keeping one's funds with a 
banker, aud making payments by orders, or cheques, upon 
him. When the person making the payment and the persou 
receiving it keep their mone}" with the same banker, there is 
no need of any money passing at all in the premises, the 
sum being merely transferred in the banker's books from 
the credit of the payer to that of the receiver. The banker 
is quite willing to do this business for nothing, and eveu 
sometimes to allow the depositors a low rate of interest on 
all balances remaining in his hands, in consideration of the 
privilege he enjoys of loaning such proportion of the sums 
as he deems safe to other parties at a higher rate of interest. 
In the large cities, by an arrangement called " the clearing- 
house," substantially the same benefits are secured as if all 
the people of the cit}- kept their cash .at the same bank ; in- 
asmuch as all the cheques drawn on eac T i of the different 
banks, and passing in the course of the business day into 
other banks, are assorted before evening at the clearing- 



444 POLITICAL ECONOMY. 

house, and set off as far as possible against each other, 
leaving only balances to be adjusted in money. 

The London Bankers' Clearing-house was established in 
1775 ; in 1864, the Bank of England was admitted to it ; and 
since then, the clearing-house itself, and all the bankers 
and firms using it, keep accounts with the Bank of England, 
and the balances formerly settled by money, are now settled 
by simple transfers of account on the books of that great 
bank. This carries out the principle of the clearing further 
than it has yet been carried in this country, although the 
United States sub-treasury has lately joined the New York 
clearing-house, but the practical details of the clearing are 
simpler and better in New York than in London. The 
average clearings in the London Bankers' Clearing-house, 
1875-80, were £5,218,000,000 a year, and the amounts 
cleared frequently rose to £20,000,000 a day, which, if paid 
in gold coin, would weigh about 157 tons and require about 80 
horses to carry it, and if in silver coin would weigh more than 
2,500 tons and require 1,275 horses (Jevons). There are 
besides many other clearing-houses in Great Britain. Of 
the total business of the 23 clearing-houses in the United 
States in 1880, namely, over $50,000,000,000, the New 
York house did 65%, and the average daily clearings there 
for the fiscal year 1879 were $76,167,983. 

"We will describe mainly from observation the New York 
Clearing-house, which was established in 1853, and premise 
that the principle is the same, though the details may be 
different, in all other clearing-houses. Business men in New 
York usually pass in to their bankers as a deposit all the 
cheques they have received in the course of a business day. 
It is the custom for each man to draw his own cheque 
on his banker to make payments with, and to pass in the 
cheques he receives to his banker. There are fifty-nine 
clearing-banks in New York city. Each of these banks 
sorts out every day the cheques it has received drawn on 
each of the other banks into separate parcels ready for the 



CREDIT. 445 

clearing. Each bank Las, therefore, to deliver fifty-eight 
parcels, which represent the property of that bank, and are 
a claim upon the other banks, and to receive fifty-eight par- 
vels, which represent the property of other banks, and are a 
claim upon it. Before ten o'clock in the morning fifty-nino 
messengers, having each fifty-eight parcels to deliver, appear 
at the clearing-house, each reporting at once to the manager 
for record the amount of exchange he has brought, which is 
entered of course as credit to his bank, and then all take 
their positions in order in front of the fifty-nine desks, 
behind which sit fifty-nine clerks, each representing one 
of the banks. Each messenger stands opposite the desk of 
his own bank, with his parcels already arranged in the exact 
order of the bank-desks before him. Each clerk inside his 
desk has a sheet containing the names of all the banks 
arranged in the same order, with the amounts carried out 
which his messenger has just brought. These are entered 
in his credit column. Each messenger carries also a slip 
ready to be delivered with each parcel to each clerk, on 
which is entered the amount of exchange he now brings to 
each bank. The amount brought to each bank is debit to 
that bank, just as the amount brought by each bank is credit 
to that bank. A signal from the manager, and each mes- 
senger steps forward to the next desk, delivers his parcel 
and also the slip that goes with it, which latter the clerk 
signs with his initials and hands back to the messenger as 
his voucher for the delivery ; and then each messenger ad- 
vances to the next desk, — the whole cue moving in order, 
— at which precisely the same things take place as before, 
and so on, until the circuit of the room is made, and each 
comes opposite again the desk of his own bank, having 
passed to each its exchange and taken a receipt for each 
delivery. This process takes a\>out ten minutes ; when each 
clerk, who had on his sheet to start with the credit due his 
bank, has now the data to calculate the debit of his bank. 
The difference between the total amount received and the 



446 POLITICAL ECONOMY. 

total amount brought by his bank is the balance due to or 
from the clearing-house as to that bank. All the clerks 
report to the manager the amounts received, and as his 
proof-sheet holds already the amounts brought, if the two 
columns add up alike, no mistake has been made, and the 
general clearing is over. Thirty-five minutes are allowed 
the clerks to enter, report, and prove their work. Fines 
are imposed for errors discovered after that time. The 
clearing-house gives tickets of debit or credit to all the 
banks, and the debit ones must pay in lawful money before 
half -past one, and the credit ones will get their due from 
the manager immediately after. The largest sum ever 
cleared in New York in one day was Nov. 17, 1868, 
$206,034,920.51, and the smallest sum Oct. 30, of the 
panic year 1857, $8,357,394.82. 

There has lately been instituted in England what is called 
the cheque-bank, which is designed to bring the benefits of 
the cheque-system more easily to all classes of the people. 1 
It is a stock company in London, which has entered into 
relations with nearly all the banks and bankers of the 
United Kingdom, and with many colonial and foreign banks, 
by which cheque-books are furnished for sale by the cheque- 
bank, through these associated banks, which also agree to 
cash the cheques, every cheque in which books indicates by 
printed and indelible perforated notices upon the forms what 
the utmost sum is against which that cheque can be drawn, 
and the aggregate of these sums is the price of the book less 
1 1-5 penny for each cheque in it, of which the penny is for 
the government stamp and the one-fifth for the profits of the 
cheque-bank. It is a security against fraud that each cheque 
bears on its face the utmost sum for which it can be drawn ; 
and as it is drawn to order and crossed, that is, only made 
payable to a banker, it is dangerous to meddle with in a 
fraudulent intent. The Crossed Cheques Act (1876) makes 

1 See Jevons's Money and the Mechanism of Exchange, and Macleod's Econ, 
TPhil., vol. ii., p. 511, et seq. 



CREDIT. 447 

felony any obliteration of the crossing or alteration of a 
cheque. Crossing is of two kinds, special and general. 
Any particular banker's name written between the two trans- 
verse lines, in which alone crossed cheques differ from 
ordinary ones, makes that cheque payable by him only : 
without the name, it is generally crossed, and is payable by 
any banker. If the cheques be actually drawn for less than 
the perforated sums, the bank will give additional cheques 
for the balance ; or the persons to whom they are paid out, 
if drawn for the full sum, may give back the change if the 
debt thus paid be less than the full sum. Though drawn by 
and payable to bankers, and thus to be settled ultimately 
through the clearing-house, and not to be paid in money 
though they have been paid for in money, any banker or 
other person will give money for them because their ultimate 
payment is sure. As all money received for cheque-books 
is left in the hands of the bankers who sell them, or trans- 
ferred to other bankers that they may meet the cheques as 
presented, an interest is paid to the cheque-bank on the bal- 
ance of deposits thus held, and this, together with the one- 
fifth of a penny for each cheque, is the ouly source of profit 
to the cheque-bank. These cheques have a more generalized 
character than ordinary bank-cheques, they are safer than so 
much money would be, they might, in some circumstances, 
become money as much as bank-bills arc, and there is no 
difficulty in shopping or in paying wages by means of them. 
The associated banks keep an account with the cheque-bank, 
but are not obliged to keep a separate account with the pur- 
chasers of cheque-books, which is a great relief. The cheque- 
bank thus extends the use of cheques to a multitude of small 
transactions, and relieves the other banks from what would 
otherwise be a great deal of troublesome accounting. The 
longer these cheques remain out before presentation the 
more profitable to the cheque-bank, and their average life 
has been heretofore about ten days. 

8. Circular Letters of Credit. These are issued by bank- 



448 POLITICAL ECONOMY. 

ers to their foreign correspondents, ordering them to pay to 
the person named in the letter such sums of money as may 
suit his convenience, not to exceed in the aggregate the limit 
mentioned in the letter itself. To travellers in foreign coun- 
tries such a letter of credit is much more convenient than to 
carry the money : because, in the first place, they can obtain 
money on it in all the principal cities of the world in just such 
sums as they need ; in the second place, they have to pay 
for no more credit than they actually use ; in the third place, 
the letter is available for no one else, and so is not liable to 
be stolen, though it may be lost ; and in the fourth place, 
the money need not be deposited with the banker at home 
any faster than it is actually called for abroad. 

9. Cash Credits. The Scotch banks have long practised 
on a system that has proved extremely beneficial to Scotland, 
namely, to create a drawing account in favor of a deserving 
customer, who has no deposits in the bank, but who draws 
out and pays in from time to time just as if he had, and in- 
stead of receiving interest on the daily balance at his credit, 
he pays interest on the daily balance at his debit. These 
are called Cash Credits. Of course, only banks can furnish 
them which have a superfluity of credit to sell, and they are 
safe and useful Only in communities in which men are well 
known to each other. Some friends of the parties thus ac- 
commodated always guarantee the bank against loss ; but 
the losses have proved to be insignificant, the gains to be 
marvellous, and this form of credit issued on the basis of no 
previous transaction illustrates better than any other the 
principle that credit is capital. 

These nine are the principal forms of instruments of 
credit ; and we must now observe that credits are extin- 
guished in four different waj^s : first, by a payment in money, 
which puts a commodity in place of the credit, and annihi- 
lates the latter ; second, by a release of the debtor from the 
obligation to pay by the free act of the creditor, which of 
course extinguishes his right to demand ; third, by renewal, 



CREDIT. 449 

either to the creditor, or to some other person with his con- 
sent, as becomes the case with persons receiving cheques or 
bills of exchange ; and fourth, but principally, by set-off, as 
in book-accounts and at the clearing-house, since a mutual 
release from debts becomes a mutual payment of debts. 1 
Thus we see that most credits extinguish each other, and bal- 
ances only remain. Credits are like a circle, which returns 
perpetually into itself. Some of the advantages of credit 
have been already anticipated in the discussion of its princi- 
pal forms ; but we will now instance more specifically a few 
of these advantages. 

(a) There are young men in every community, who have 
integrity and industry and skill, but little or no capital ; and 
when such men are enabled to borrow money to start them- 
selves in business, or to enlarge a business already in success- 
ful operation, the general interests of production, as well as 
iheir personal interests, are subserved by such credit, because 
in all probability capital thus passes from hands which are 
less to hands which are more able to use it productively. 
Those who are best able to make capital tell are generally 
those who are most desirous to obtain it, and frequently those 
who can offer the best security for its replacement. Nothing 
is to be said against, but evety thing in favor of, such a loan- 
ing of capital as shall bring it, under safe conditions, from 
the hands of the idle, the aged, those indisposed, or those 
incompetent to use it productively, into hands at once com- 
petent and honest. Such credit is a benefit, and only a bene- 
fit, to all the parties concerned, and to society at large. The 
operators retain something of profit after replacing the capi- 
tal with interest ; the lenders receive more than if their capital 
remained idle, or they employed it themselves ; and society 
is benefited by a more complete development and rapid cir- 
culation of services. Despite all the instances of broken 
faith, it is still an honor to human nature that men do so 
gain by good character the confidence of their fellows that 

1 See Macleod's Economies, pp. 517, 518. 



450 POLITICAL ECONOMY. 

they are, and ought to be, trusted with capital on their sim« 
pie word or note ; and it is the glory of free political insti- 
tutions, that under their influence, more than elsewhere, 
young men with no other dower than integrity and purpose 
do rise, by the help of so slight a stepping-stone as this, in 
crowds, to the high places of opulence. In the point of 
view, that thus all the available capital of the community is 
brought out into productive activity too much can scarcely 
be said in favor of savings-banks, which take the surplus 
earnings of the poor, and not only keep them safely, but 
pay a fair interest on each deposit, and loan the aggregate 
at a higher rate on choice securities, thus stimulating fru- 
gality in a wide circle of depositors, and at the same time 
aiding production by opportune loans to the best class of 
borrowers. There were $443,000,000 invested in savings- 
banks in the State of New York, and $230,000,000 in the 
small State of Massachusetts, in the year 1881. In this 
category of the advantages of credit come also the ordinary 
bank discounts, made for short periods only, holding the 
debtor to the strictest rules of payment, only professing and 
only enabled to help customers over the transient hard places 
in their business, and not to furnish the funds on which the 
business is mainly conducted. Sums drawn from the banks 
on credit should only form a part of the circulating capital 
of a business, and never be put into the form of fixed 
capital. The passing necessities of a business having an in- 
dependent basis of its own can be safely and conveniently 
met by bank discounts. So far as the capital stock of a 
bank is made up of small subscriptions, it has the advantage 
just spoken of, of calling otherwise idle sums into activity ; 
and so far as no undue privileges are accorded to it by law , 
there is no branch of industry more legitimate and beneficial 
than banking. It is no essential part of the functions of a 
bank, that it manufacture and issue money ; the money it 
loans should be the national money: and if that, unfortu- 
nately, be credit money, the elemeni of credit in the money 



CREDIT. 451 

should be sharpty discriminated in the public mind from that 
element of credit by which the bank loans it to its customers. 
(b) There is another class of advantages in credit, which 
do not depend so much on the transfer of capital from less 
to more productive hands, as on the facilities which credit 
affords in economizing the general operations of exchange. 
Here the advantages are derived from the convenience of 
settling accounts arising out of exchanges, rather than from 
the character of the exchanges themselves. Look, for ex- 
ample, at bills of exchange. They serve to settle up the 
accounts arising from the commerce of two continents, with 
but little transmission of m.oney from either, and with but 
little loss of time. Bills drawn in New York on London 
are usually payable at sixt}' days' sight ; and the merchant 
despatching a ship is able to realize at once the value of her 
>, minus interest for the time his bill has to run ; he is 
indeed still liable in part to see that his bill is ultimately paid 
by his drawee ; but the commercial integrity of the leading 
houses in all countries is with justice so firmly believed in 
and acted on, that on the whole but little anxiety springs 
from this source. It is one of the noble thiugs in inter- 
national commerce that men trust each other across the 
oceans, and lay millions of value on the faith of a single firm. 
Inland bills of exchange equally facilitate settlements within 
the country itself ; and cheques contribute to the same end 
even more simply, passing readily iu payments wherever the 
parties are known, and, though credit, doing the work of 
money more conveniently, and within certain limits as safely 
as money itself could do it. The face of a cheque drawn to 
the amount of his deposit in favor of another depositor is 
transferred in the banker's books from the credit of the draw- 
er to that of the payee. The banker is released from one 
debt by creating another of equal amount. The drawer is 
released from a debt by causing another debt to be trans- 
ferred to the payee. The payee is paid by the drawer by the 
receipt of auother debt. 



452 POLITICAL ECONOMY. 

(c) It h not strange that some thinkers and writers, seeing 
these unquestionable benefits of credit even within the peculiar 
sphere of money itself, have come, like Herbert Spencer and 
many others, to think and teach that credit might answer all 
the purposes of money. It is certain that it answers some of 
the purposes of money. Suppose A has bought of B $100 
worth of goods, and B has bought of A $125 worth of another 
kind of goods. Three ways are open to close up these trans- 
actions. A may pay B and B may pay A in money. Thi3 
would take $225. A may pay B in money, and B may send 
it back with $25 more. This would take $125. Or A and 
B may mutually balance books, and B pay the difference in 
account. This would take $25. It is clear, that, as one or 
other of these methods prevails in practice, the quantity of 
money required to do the business of a country is very differ- 
ent. So in international trade. Foreign bills of exchange 
lessen enormously the quantity of money that would other- 
wise have to be transported. Credit does take the place of 
money in part. Can it take the place of money entirely? 
Let us see. We have defined Credit as a right to demand 
something of somebody ; the denominations of money are cer- 
tainly needful in order to measure this right ; and how can 
the denominations of money be maintained at all separately 
from the use of money itself as a medium ? Moreover, great 
as is the undoubted power of credit, it waits for something 
beyond itself ; it waits for realization ; and how can realiza- 
tion come without the use of money, at least to settle bal- 
ances? Further, there always have been hitherto in all com- 
mercial countries longer or shorter periods during which there 
was a general reluctance to accept the ordinary instruments 
of credit in exchange. Money, and much of it, was then 
found to be indispensable. The very advantages of credit 
itself, which have now been explained, are dependent on this, 
that there The underneath it, to support and limit it, a solid 
basis of value-money, in whose denominations value can be 
reckoned, in whose coins the balances of credit can be struck, 



CREDIT. 453 

and whose presence secured everywhere by natural laws alone 
can enable fulfilment to join hand in hand with promise. If 
ever credit should usurp the whole domain of money, a toler- 
able standard of value would be no longer possible, credit 
itself would lose its foothold, and the vast balloon of promise, 
sailing for a while through the blue, the joy of projectors and 
the wonder of credulous spectators, would descend to the 
earth on a sudden collapsed and ruined. 

(d) Besides the two essential functions of banks, receiving 
deposits and discounting bills, they perform a variety of 
other legitimate operations in credit. They buy and sell debts 
of all sorts. They sell their own drafts on distant places. 
Our own new national banks have done an immense business 
in the national bonds. They have been instrumental in dif- 
fusing these bonds among the people. They collect for their 
customers the coupons at maturity. They are the factors of 
the government in exchanging, for those who desire it, one 
species of bond for another. For the most part, all these 
dealings of bankers in debts, — and their aggregate amount 
is enormous, — must be enumerated among the advantages 
of credit. But there are also some natural disadvantages in 
Credit. 

• (a) When credit is much given by dealers to ordinary 
buyers, the reverse results take place from those already 
characterized, and capital passes out from the hands of pro- 
ductive operators and becomes temporarily unavailable as 
capital. When an industrious artisan or merchant has trusted 
out St, 000 to dilatory customers for six months or a j'ear, it 
is so much withdrawn for so long from his active capital, and 
to make up the consequent loss of profit there must be an 
addition to the prices of his wares, and besides some bad debts 
belong to such a system, and there must be an additional 
price to compensate this, and thus the customers who pay 
promptly bear a part of the proper burden of the delinquents, 
who at least do not wholly escape, inasmuch as they ulti- 
mately (if they pay at all) pay a price enhanced by then- own 



454 POLITICAL ECONOMY. 

delay. If the current profit of capital be 10%, and the mer- 
chant sells and gets returns five times a year, something less 
than 2% profit may be charged to each article, but if he only 
gets returns at the end of the year, 10% must be put upon 
every thing. Hence the excellent maxim, " Quick sales and 
small profits." 

(b) There is a greater inherent uncertainty in values con- 
nected with credits than in those connected with commodities, 
or than in those connected with personal services. "We have 
already seen that value has its sphere of operations in the 
past, in the present, and in the future. There is uncertainty 
connected with what has been done in reference to value, as 
the market may prove to have been miscalculated, and the 
commodities to have become unsuitable ; there is uncertainty 
connected with what is now being done in reference to value, 
as the service bargained and being paid for may be less skil- 
ful than is supposed ; but from the nature of the case there 
is greater uncertainty connected with what is to be done in 
reference to value, because in the first two cases some of the 
conditions are already fixed, while in the last all of them are 
at least open to hazard. There is sufficient certainty in all 
three to justify, and probably to reward operations in refer- 
ence to value, but credits are naturally more sensitive in the 
law of their value than either commodities or services. 

(c) Largely in consequence of what has just been ex- 
pressed, credit-exchanges are more likely than others to bo 
unduly multiplied and to fail of ultimate realization in full. 
No more bales of cotton can be actually bought than are act- 
ually produced, and no more men can be hired than are willing 
to work ; but there may easily be, and often are, more trans- 
actions on the strength of a prospective cotton crop than the 
crop itself can possibly realize ; and hence credits, whose 
sphere is the future, though legitimate and potent, lie in a 
field that adjoins the field of gambling. Gambling occupies 
the field of chance. Credits occupy the field of probabili- 
ties. Is speculation proper? That depends on the meaning 



CREDIT. 455 

of the word "speculation." If "to speculate" means to 
buy any thing with an expectation based ou rational proba- 
bilities of being able to sell it again under different conditions 
at a higher price, speculation is proper and beneficial to the 
public — values of things thus bought and sold neither fall 
so low nor rise so high as they otherwise would do, which is 
a public gaiu. But if "to speculate" means to buy and 
sell on chances merely, it is gambling, and what one gambler 
makes another loses. Under a sound money, healthful public 
opinion, and good law, gambling never can become formida- 
ble ; and it is very plain, that the limits and conditions of 
legitimate credit are the limits and conditions of rational 
probability. 

(d) A principal disadvantage of credit is seen in its action 
on prices through increased demand, and in its consequent 
tendency to produce commercial crises. A man's whole 
purchasing-power is made up of three things : first, the 
property in his possession ; secondly, the value that is owed 
to him ; thirdly, his credit. He can buy services of the 
three kinds with these three things ; and his power to buy 
is exactly measured by the sum of these three things. But 
while the first two are limited and ascertainable, the third, 
credit, is in a certain sense unlimited. Being based upon 
confidence, which is itself a variable quantity, a man's 
credit at one time may be vastly greater .than at another, 
compared with his other property ; and if he have the repu- 
tation of doing a safe and regular business, and is favored 
by circumstances, he will find himself able sometimes to 
bay on credit to an extent out of all proper proportion to 
his other capital. When, therefore, credit is offered and 
received for commodities, it has the same influence upon 
prices as when money is offered and received for them. It 
follows that there i^ likely to be a rise of prices whene\ er 
there is an extension of credit for the purpose of purchasing ; 
indeed, when money only is used to buy with, there cannot 
be a general rise of prices, because while more money ma}- be 



456 POLITICAL ECONOMY. 

spent on some things, and they rise in price, there would 
be less money for other things, and they would rather fall in 
price ; but when credit is used freely in addition to money, 
and increased purchases go on in all departments at once, 
there is a rise of prices as to all commodities and a universal 
spirit of speculation. At such times, and while prices are 
still rising, men seem to be making great gains ; everybody 
wishes to extend his operations by means of all his money 
and all his credit ; and forms of indebtedness are multiplied 
on every hand. By and by it begins to be perceived in cer- 
tain quarters that the thing has been overdone ; speculative 
purchases cease ; banks become particular what paper they 
discount ; men find it difficult to sell their debts in order to 
provide for their own obligations ; they fall back on the sale 
of their commodities, but when holders are anxious to sell, 
prices always fall ; a panic now sets in, more irrational, if 
possible, than the previous over-confidence ; their inflated 
credits and commodities collapse in the hands of their hold- 
ers ; sales at great sacrifices are inadequate to meet the mass 
of maturing debts contracted when confidence was high ; men 
fail, and must fail ; the banks cannot help them, or think 
they cannot ; and so wide-spread commercial disaster comes 
in. 

Such crises swept over this country in 1837, 1857, and 
1873, and will doubtless recur in the time to come. They 
alwa3^s arise from disordered credits, and though not neces- 
sarily connected with credit-money, are more likely to come 
in connection with that. The more strong and conservative 
the banks maintain their ordinary condition, the more power- 
fully can they operate to prevent or abate a panic. They 
ought alwaj's to be on the shore and never in the stream. 
They ought to be able to offer credit on approved securities 
on all occasions whatever ; for it is not money so much that 
is needed to allay a panic, nor even credit actually given, as 
it is a knowledge that abundant credit can and will be given. 
As a panic becomes imminent, banks ought to be able to 



CREDIT. 



451 



extend their discounts freely ; and the permission to do this, 
contrary to the Bank Act of 1844, given by the government 
to the Bank of England, has on three several occasions acted 
like a charm to still the ragings of a commercial storm. Of 
course banks must raise their rates of discount under these 
circum stances. On the occasions referred to, the Bank of 
England was forbidden to discount at less than 10%. As 
the inclined plane of rising prices is slowly ascended before 
a crisis, so the fall of general prices seems to be rather grad- 
ual also till the lowest point of them is reached, from which 
another ascent is commenced. The following table, taken 
from the New York Public of the first week of November, 
1881, is instructive on both these points. Taking the prices 
in I860 of 43 articles of prime necessity, which constituted 
then and afterwards about three-fourths of the commerce of 
the country, as the normal standard or 100, the table gives 
the comparative gold prices of the same for four years pre- 
vious to 1873 and for seven years subsequent, as follows : — 



1869 116 

1S70 118 

1871 120 

1872 122 

1873 113 

1874 115 



1875 107 

1876 100 

1878 81 

1879 98 

1880 103 

1881 Ill 



(e) The last disadvantage of Credit to be noted is the 
facility it offers to contract national debts. A nation is a 
moral person, and as such it may become debtor to its own 
people and to foreigners, and the debt be made a sort of 
mortgage on the national property and income. It is not 
denied that incidental advantages may spring up in connec- 
tion with such a debt: the bonds, which are its evidences, 
open up to the people a convenient form of investment for 
presently inactive capital, and for trust funds of all kinds ; 
there can be no doubt, that certain classes of persons hold- 
ing these national obligations are won thereby to a stronger 



458 POLITICAL ECONOMY. 

loyalty and become better friends to stability in government, 
though this consideration applies mainly to new governments 
and those temporarily endangered ; both England and the 
United States now make a portion of their public debt the 
basis of a national system of banking, but it is very ques- 
tionable whether this can be justly put among the incidental 
benefits of the debts ; and again " a moderate debt adds to 
the credit of a nation, and its ability to raise money in an 
emergency, for bankers and capitalists are more ready to 
take such securities as they are in the habit of dealing in " 
(Sidney Homer). On the other hand, the burdens of a 
national debt are very apparent : the annual interest charge to 
the Union at the close of the late civil war was $150,000,000, 
which gradually declined by the lowering of interest and the 
paying off of principal to $61,368,912 for the year ending 
June 30, 1881 ; between March, 1869, and August, 1873, 
the United States paid $378,015,065 on the principal of its 
public debt; the collection of the internal revenue alone 
of the national government cost for the fiscal year 1867 
$7,712,089 ; and in each of the two years 1870 and 1881, a 
little over $101,500,000 was paid out to reduce the principal 
of the debt. These vast sums came out of the industry and 
income of individuals ; and taxation to any such degree as 
this is a great disturbance to industry, and gives rise to 
an army of officials who eat out a considerable percentage 
of all they collect. Moreover, the various expedients of 
taxation, which are always practically unequal in their oper- 
ation, give rise to irritation and political agitation, and even 
sometimes to threats of repudiation, especially when the occa- 
sion has gone by under which the debt was contracted, and 
a generation is called upon to liquidate a debt which it had 
no agency in creating. 

Here the vexed question arises, how far has one genera- 
tion the right to throw upon succeeding ones the burdens of 
a national debt? The true answer is, that it has a very lim- 
ited right indeed. The opposite doctrine ta'citly implies that 



CREDIT. 469 

succeeding generations will have no occasion for extraordi- 
nary expenses of their own, and therefore may rightfully be 
made to contribute to the extraordinary expenses of this 
generation. But it is pure assumption to take for granted 
that the next generations will not have, of some kind or 
other, as much occasion for an extraordinary effort in the 
way of defence or of improvement as the present generation 
has had. It is an illusion to estimate what has now to be 
done as of much more importance than what will have to 
• be done. Therefore to throw our burden forward on another 
generation that may have its own peculiar effort to make, 
just as great and just as imperatively called for, is an unwar- 
rantable procedure. The view that has prevailed in practice, 
that a great war-debt, for example, might be cast with facility 
upon posterity, has given rise to needless and expensive wars ; 
and they have been called upon to pay who perceive the utter 
inutility of the expenditure. Thus bitterness has been added 
to burden. Besides, the men to fight the battles, and the 
capital by means of which to feed, clothe, and furnish them 
the munitions of war, must come from that generation ; and 
there is always great injustice in the manipulations of a 
debt ostensibly incurred to obtain this capital, and the debt 
itself is usually in large part rather a memorial of the war 
than of the means by which its expenses were actually de- 
frayed. The present generation of American citizens was 
called on to do an important thing in suppressing a civil wai , 
and in eradicating a social institution that was thoroughly 
bad ; the expense of doing this was many fold enhanced by 
timid counsels in the field, by class legislation in Congress, 
and by wretched financiering in the Cabinet ; but the debt, 
vast as it is, and unnecessarily incurred as a portion of it 
was, can all be paid off, must all be paid off, by the genera- 
tion that incurred it. That it may thus be paid will require 
an economical administration of government; an avoidance 
of intervention in the affairs of our neighbors, and of entan- 
gling alliances with foreigners ; a free commercial system, 



460 . POLITICAL ECONOMY. 

under which duties shall be adjusted only for the most pro- 
ductive revenue ; and a constant and onerous home taxation. 
We may perhaps throw into the following propositions 
the substance of the discussions in this chapter : — 

1. Credits are rights bought and sold like commodities, and 
therefore find an important place in economics. 

2. They are specially related to future time, and thus share 
the uncertainties of the future. 

3. Nevertheless they are legitimate and potent, and round 
out the wondrous world of values. 

4. The economic and moral worlds touch each other in 
credits, which have their foundation in human character. 

5. " It is the character, experience, and connections of the 
man wanting credit, his knowledge of his business, and oppor- 
tunities of making it available in the struggle of life, that 
weigh with the shrewd capitalist far more than the command 
of a few thousands more or less of money in hand " (Cobden) . 

6. Credits gather up the driblets, economize exchanges, spare 
the use of money, and put even the Future under contribution. 

7. Good bankers are great benefactors. 

8. Credits are liable to abuse, as always involving some 
losses, as often bringing on crises, and as sometimes piling tip 
national debts. 



FOREIGN TRADE. 461 



CHAPTER XII. 

FOREIGN TRADE. 

The Constitution of the United States expressly forbids 
that any taxes should be levied upon articles exported from 
them to foreign countries. Another clause of that instru- 
ment forbids any taxation of articles carried from one State 
iuto another. Knowing that exchanges are good, that they 
are designed by God for the welfare of mankind, that Plenty 
is better the world over than Scarcity, the wisdom of our 
fathers shut off all chance of meddling by posterity with one- 
half of the elements of foreign trade, — exports, — and se- 
cured the entire freedom of interstate commerce forever. In 
granting to Congress the power to tax the people at all, the 
Constitution restricts it to the sole purpose of getting money. 
The exact sense of the taxing clause is as follows : Congress 
shall have power to lay and collect taxes, duties, imposts and 
excises, in order to get money with which to pay the debts 
and provide for the common defence and general welfare of 
the United States ; and therefore, no power is given to lay 
taxes for any other purpose than to get money for the use of 
the whole United States. Ostensible taxes on foreign goods, 
accordingly, designed to prevent the United States from get- 
ting money by reason of the highness of their rates, and thus 
to raise artificially the prices of certain domestic products, 
are clearly unconstitutional as well as radically unjust. On 
this point we are able to quote the pretty explicit opinion of 
Daniel Webster, who has been long and justly styled the 
"great expounder" of the Constitution. In the course of 
his memorable speech against Hayne in 1830, he said with 



462 POLITICAL ECONOMY. 

reference to opinions expressed by him in Faneuil Hall ten 
years before, — " I said then, and say now, that, as an origi- 
nal question, the authority of Congress to exercise the revenue 
power with direct reference to the protection of manufactures, 
is a questionable authority, far more questionable, in my 
judgment, than the power of internal improvements." A 
recent decision (October, 1874) of the Supreme Court settles 
alyo the further doctrine that the power to tax even to get 
money is limited by the end for which the money is to be 
expended, that is, public money must be expended for a pub- 
lic purpose. " To lay ivith one hand the power of the govern- 
ment on the property of the citizen, and with the other bestow 
it upon favored individuals to aid private enterprises and 
build up private fortunes, is none the less robbery because it 
is done under the forms of law and is called taxation. This is 
not legislation. It is a decree under legislative forms. Nor 
is it taxation. Beyond a cavil there can be no lawful tax that 
is not laid for a public purpose" (Wallace, 20, 655). Ifethe 
fathers in their well-known zeal for liberty of commerce had 
taken one step more in the Constitution, and forbidden all 
taxes upon imports, for which there exists no reason not 
equally applicable to exports, they would have conferred a 
great and lasting boon upon their country. It would indeed 
have been but a negative boon, an open opportunity to ex- 
change products with all nations as each generation should 
find them profitable ; and it would have required what might 
at first have been deemed an inconvenience, direct taxes on 
the property or income of the people of the States for national 
uses ; but the boon in both these respects would have helped 
the nation to grow rich from the start, and would have saved 
it later from some of the worst chapters of its history. Even 
then it would still have been needful in each generation to 
unfold, as we have already tried to do in these pages, the 
vast benefits to men of free exchanges, but it would not have 
been needful to apply the principles specially to foreign 
trade. 



FOREIGN IE ABE. 463 

It is only because their application to the wider field of 
international exchanges has been contested by some persons, 
who have conceded their validity within the boundaries of the 
individual nations, that it is now needful to bestow upon the 
subject a separate treatment, to demonstrate that the laws of 
exchange are universal and not partial, that the accident of a 
different nationality has nothing to do with the motives or the 
gains of the two parties to an exchange, and also to attempt to 
answer with thoroughness and candor the objections that have 
been raised against the freedom of international exchanges. 

Here, as everywhere else within the science of political 
economy, the safe appeal lies to the common sense of men. 
The scientific mind sees the absurdity at once of attempting 
to apply one set of principles to domestic exchanges and an 
opposite set to international exchanges, since a science is of 
necessity general, and its principles, if sound, must apply to 
every possible case of the whole class ; and the common mind 
as well can be made to see with entire clearness that artificial 
obstacles put in the way of the freedom of exchanges invari- 
ably involve both injustice and loss. It is only necessary to 
take the simplest cases first, display familiarly the principles 
applicable to them, and then with the clew well in hand, to 
pass on through the more intricate portions of the subject. 
A writer, whose simple purpose is to reach the truth, who has 
no personal interest in either defending or overtLuowing a 
dogma, will not confuse the understanding of his readers, 
and his own, by leaping at once into the thick complications 
of this large subject. Happily, there is no need of any such 
procedure. Man is man, motive is motive, and exchange is 
exchange ; and the apparent chaos of commerce can be 
resolved through these alone into harmony and order. 

In our fourth chapter it was put beyond the reach of con- 
troversy or cavil, that the only reason why men ever exchange 
services at all, is on the ground of a relative superiority at 
different points. This relative superiority at different points 
was shown to depend in individuals partly on natural gifts, 



464 POLITICAL ECONOMY. 

partly on concentration of mind, or muscle, or both, on a 
single class of efforts, and partly on the use and familiarity 
in the use of the gratuitous helps of Nature aiding that class 
of efforts. The tailor makes the blacksmith's coat, and the 
blacksmith shoes the tailor's horse, for no other reason in the 
world, except that each has a relative advantage of the other 
in his own work, and therefore there is a mutual gain in their 
exchanging works. To pretend that there would be any 
exchange between them, in case the blacksmith could make 
coats as well as the tailor, and the tailor shoe horses as well 
as the blacksmith, would be to assert that man acts without 
a motive, and that exchanges take place without a gain. It 
was also shown in the same connection, that the greater the 
difference of relative advantage, the greater the gain of an 
exchange, because each purchases the service of the other at 
the rate of his own highest efficiency. To recur to the same 
example, while the efficiency of the tailor and the blacksmith 
each in his own trade remained at 6, the efficiency of each in 
the trade of the other being at 5, there was only a gain of 2 
to be divided between them ; but when by concentration and 
application the efficiency of each in his own trade rose to 15, 
his efficiency in the other remaining at 5, there was a gain of 
20 to be divided between them. When the relative superi- 
ority of each over the other in his own trade was low, the 
gain, though sufficient to justify the exchange, was small ; but 
when the difference of relative advantage increased, just in 
that ratio did the exchange become more profitable to both. 
The obvious inference from this, then drawn, and now re- 
peated, is, that every person who exchanges with others is 
directly interested in the highest efficiency and success of 
their efforts as well as his own. The diversity of relative 
advantage at different points exhibited by different nations, 
and consequently the gains of international exchange, were 
expressly reserved at that point to a later stage of our 
inquiry. That stage is now reached. 

The various countries of the earth have received from the 



FOREIGN TRADE. 465 

hands of God a diversity of oiiginal gifts, in climate, soil, 
natural productions, position, and opportunity. This diver- 
sity exists for a good design, and can never be substantially 
reduced by man, even if there were, as there is not, an} 7 good 
reason for desiring to reduce it. Besides original diversity 
in these respects, there has been developed in the history of 
the inhabitants of these countries, a diversity of tastes. 
8()titudes, habits, strength, intelligence, and skill to avail 
themselves of the forces of Nature around them. These 
differences are somewhat less inherent and more flexible than 
the others, but they exist, and always have existed, and in a 
greater or less degree always will exist ; and it is on these 
diversities, original, traditional, and acquired, that interna- 
tional commerce depeuds ; it never would have come into 
existence without them, and it would cease instantly and 
completely were they to fade out. Men do not engage in 
foreign trade for the pleasure of it ; they engage in it for the 
sake of the mutual gain derivable to both parties ; they 
desist from it so soon as that mutual gain disappears ; and 
there is no mutual gain in any series of exchanges, unless 
each party has a superior power in producing that which is 
rendered, compared with his power in producing that which 
is received. 

For the sake of illustrating in order the common principles 
of foreign trade, we will now take a simple supposed case, 
a trade between England and France in cottons and silks, 
and follow it through clearly to the end. The first question 
is, when wilf it be mutually profitable for England to send 
cottons to France to buy silks with, and France to send silks 
to England to buy cottons with ? Money and all other com- 
modities except these two are out of the question now, though 
we shall use the denominations of mone}' for comparing the 
respective efforts, translating pounds and francs into dollars 
for simplicity's sake. The answer is easy the trade will be 
mutually profitable when efforts bestowed in France upon 
silks will procure, through exchange with England, more of 



466 POLITICAL ECONOMY. 

cottons than the same amount of efforts bestowed in France 
upon cottons will produce of cottons directly ; and then, 
when efforts bestowed upon cottons in England will procure 
more of silks, through exchange with France, than the same 
amount of efforts bestowed in England upon silks will pro- 
duce of silks directly. So long as there is a difference of 
relative efficiency in the production of the two commodities 
n ti<e two countries, so long, setting cost of carriage aside, 
may there be a profitable exchange of the two. To make 
such an exchange profitable to both parties, it is not at all 
needful that the cottons exchanged for the silks shall have 
cost the English as many days' labor as the silks may have 
cost the French ; or that the silks shall cost the French as 
much as the cottons cost the English ; it is not a question 
of the absolute cost of either commodity to the parties pro- 
ducing it ; but a question of the relative cost of that produced 
in either country compared with what would be the cost of 
the other commoditj" were it to be produced in that country. 
A demand in each country for the product of the other is 
of course presupposed in the illustration. In effect the 
Frenchmen ask, Can we get more and better cottons by work- 
ing on silks and then trading them off for English cottons, 
than we can get by the same efforts in working on cottons at 
home? The Englishmen ask, Can we get more and better 
silks by working on cottons and then trading with France 
for silks, than we can get by trying to make silks at home? 
Suppose that efforts in England on certain cottons be gauged 
at $100, and efforts in France on certain silks be gauged at 
$80, and these exchange against each other, is that a losing 
trade for England or a gainful trade for France ? We can- 
not tell yet. It depends upon this : whether the efforts 
estimated at $100 if expended in England in the manufac- 
ture of silks will procure as many and as good silks as the 
same efforts obtain in exchange with France, and whether 
the efforts estimated at $80 if expended in France on cottons 
will secure as many of them as if expended on silks and 



FOREIGN TRADE. 467 

then traded for cottons. Consequently it is not the absolute 
cost of the commodities to the' countries producing them 
which determines their value in foreign trade, but it is the 
relative efficiency of each country in growing or manufac- 
turing the commodities to be exchanged. It follows, that, 
Betting aside a greater cost of carriage, foreign trade presents 
no elements peculiar to itself, but only the same elements 
which domestic trade presents ; and consequently, that the 
same laws and limitations applicable to domestic exchanges 
are applicable also to foreign exchanges. As in every other 
exchange, so here, there are two efforts, represented in this 
case by the cost of the respective commodities, — the cottons 
$100, aud the silks 680 ; there are two desires, — the desire 
of the Englishman for silks, and of the Frenchman for cot- 
tons ; there are two estimations, — the estimation of the 
Frenchman of the effort in silks required to obtain the cottons 
by exchauge compared with the effort required to obtain them 
directly, and the Englishman's estimation of his effort in 
cottons necessary to procure the silks in exchange, compared 
with what would be the effort needed to manufacture the silks 
in England ; and, finally, as always, two satisfactions. 

The second question is, how does the diversity of relative 
advantage practically work in foreign trade? If we suppose 
that while the cottons cost $100 in England, it would cost 
8120 to manufacture there as good silks as can be made 
in France for $80 ; and that while the silks cost but $80 in 
France, it would cost $9G to make cottons there as good as 
the English can make for $100. On this supposition, France 
fan make both silks and cottons at a cheaper absolute cost 
than England can. But does that destroy the mctive and 
the gain of an exchange between the countries in these two 
articles? Let us see. By exchange with England, France 
gets for $80 in silks, cottons which would otherwise cost her 
$96, — a handsome gain of 20% ; England gets for cottons 
costing her $100 silks which would otherwise have cost hei 
$120, --another handsome gain of 20%. Though France 



4(58 POLITICAL ECONOMY. 

can make each commodity for less absolute money than 
England can make either, there is a diversity of relative 
advantage, and therefore there might be in this case, as 
there is actually in many such cases, a profitable trade. 
The efficiency of France in making silks, relatively to that 
of England in making silks, is in the ratio of 80 to 120, — 
a difference of 50 % ; while the efficiency of France in mak- 
ing cottons, relatively to that of England in making the 
same, is only in the ratio of 96 to 100, — a difference of 
4^-%. In the majority of cases, doubtless, foreign trade 
takes place in articles, in the production of one of which 
each of the respective countries has an absolute advantage 
over the other, but an every way advantageous trade may 
be carried on in articles in the production of both of which 
one nation shall have an absolute superiority over the other, 
provided only that this superiority be relatively diverse in 
the two articles, as has just been shown. This is an 
effectual answer to the clamor of some, who object to im- 
porting articles which might be made at home for the same 
sum of money as foreigners expend in making them ; ad- 
mitted, that they might be so made ; does it. follow that the 
country importing them would get them as cheaply by 
making them itself? By no means does that follow. By 
the supposition, the importing country has an efficiency in 
making those articles equal to that of the foreign country ; 
but it may also have a superiority absolute or relative over 
that country in the production of other articles which that 
country wants in exchange ; if so, the exchange complained 
of may go on to the manifest profit of both parties. Let no 
nation be in haste then to drop a trade, because it thinks it 
can make the article received in exchange as cheaply as the 
other nation makes it, so long as it has an advantage over 
the other, absolute or relative, in making the article rendered 
in exchange ; and when that advantage ceases, the trade 
will drop of itself. 

The third question is, what are the extreme limits of the 



FOREIGN TRADE. 409 

value of cottons and silks in the case supposed, and when 
•will a third nation be able to undersell either in the ports of 
the other? The answer is: the extreme value of Freuch 
silks in English cottons, will be 80 and 9G ; they cannot 
fall below 80, because they cost the French that to produce 
them ; they cannot rise above 9G, because at that rate the 
French can make cottons, and there would be no gain in 
exchanging. Nations, no more than individuals, will get 
themselves served at a greater effort than that at which they 
can serve themselves. If a given effort does not realize 
more through exchange than it would directly, then the 
exchange ceases of necessity, as fire goes out for lack of 
fuel. The extreme limits of the value of English cottons in, 
French silks, will be 100 and 120, for reasons precisely 
similar. Therefore the highest profits possible to both 
nations, under the conditions of the trade, are 20% each. 
France would be glad to take the cottons at a return of 80, 
at which rate her gain would be 20% ; and she cannot under 
any circumstances offer quite 9G, at which rate her gain 
would disappear. No third nation, therefore, in a trade of 
silks for cottons, can expel the French from the English 
ports, until it is prepared to offer nearly 96, or more, in silks 
in return for English cottons ; that is to say, until its effi- 
ciency in making silks relatively to that of England in 
making them, presents a greater difference than the differ- 
ence of efficiency between France and England in making 
bilks, which is a difference of 50%. A greater difference of 
relative advantage, and nothing else, will enable a third 
nation to undersell France in such a trade. England wculd 
be glad to take the silks at a return of 100, at which rata 
her gain is 20% ; and she cannot possibly offer quite 120, 
because at that rate her gain would wholly vanish. She 
could be undersold in the French ports, under similar con- 
ditions, and not otherwise, as the French in her own p 
as just now indicated. We have seen that the diversity of 
relative advantage in the production of the two articles in 



470 POLITICAL ECONOMY. 

the two countries is in the ratio of 50 to 4^ ; France has an 
absolute Advantage in the production of both commodities ; ■ 
the trade, proceeds simply on the basis of this relative diver- 
sity ; and no nation can take away the silks of France from 
England, or the cottons of England from the French, either 
with other cottons and silks, or any other commodity, ex- 
cept on the basis of a diversity, absolute or relative, greater 
than this. Here is the whole doctrine of one nation under- 
selling another in the ports of a third. It can do so under 
conditions of greater relative efficienc} T , and not otherwise. 

The fourth question is, how does the varying play of in- 
ternational demand affect the value of articles in foreign 
trade? The answer is : if the demand for French silks in 
England just answers to the demand for English cottons in 
France, so that the silks offered by France just pay for the 
cottons offered by England, then, cost of carriage aside, 
the gains of the trade will be equally divided between the 
two nations, each will realize 20% profit, because neither will 
have any motive to lower the value of its commodity below 
its highest value ; France, from its point of view, will offer 
80 in silks and get 96 in cottons ; England, from her point, 
will offer 100 in cottons and get 120 in silks. Demand and 
supply are equalized at a point of value most favorable to 
both parties, and really determined by the relative cost of 
production. This case of equalization, though possible, 
is likely rarely to occur in practice. On any terms of ex- 
change first offered, there is likely to be a stronger demand 
in one country for the product of the other than in this 
country for the product of that. This will lead to a change 
of value, and a new division of profits. The product for 
which the demand is less will find its market sluggish, and 
in order to tempt further and brisker exchanges, will be 
compelled to offer more favorable conditions. He who 
enters a market in quest of what is more in demand with a 
service in reti rn which is less in demand, will have to lower 
his terms, or not trade. The equalization of supply and 



FOBEIGH TRADE. 471 

AJinaud will ouly be reached in this case, by quickening the 
.einaud for the commodity now less in demand, through an 
offer of better terms in trade. Thus, if the demand for 
French silks in the English ports be slack, in comparison 
with the demand for English cottons in France, at the rate 
of exchange first established — 80 for 9G, the French mer- 
chant has no resource, if he wishes to continue the trade, 
but to offer more silks for the same amount of cottons, say, 
85 for 90. It this reduction prove sufficient to cancel the 
account in cottons 1 with the account in silks, then the trade 
will go on on th's new basis for a while, the equalization of 
supply and demand has been reached through a new valua- 
tion of the commodities, and there is now a different division 
of the profits. France gains less than 13% by her trade 
with England, while England gains 27% iu her trade with 
France. Under these new terms of exchange, it is possible 
that silks may again become heavy iu reference to cottons, 
and a new decline take place in their relative value. If the 
French are obliged to offer 90 for 90, in order to obtain 
the cottons they want, their profits will sink to 6%, while 
the English profits will rise to 05%. If, in any contin- 
gency, the French were compelled to offer in the neighbor- 
hood of 90 in silks for 90 in cottons, the trade would cease 
of course, just as every other transaction ceases when the 
rbotive for it ceases. Of course, the cottons are just as likely 
to become dull in reference to silks, as the silks to cottons, 
and in this case England must lower her demands, and thus 
surrender a larger share of the profits to^ France. By the 
play of supply and demand, within the outermost limits 
drawn by the relative cost of production, is the value of 
articles determined in foreign trade ; and no degree of com- 
plication in the variety of articles, or in circuitous exchanges, 
affects, for substance, these fundamental principles. 

It follows from these principles b}* necessary inference, 
that, if, instead of one article, as cottons, England sends 
two articles, or ten, to France in payment for silks, she will 



472 POLITICAL ECONOMY. 

send in preference that article in which her labor is relatively 
most efficient, so long as the French demand will receive it ; 
then, when obliged to lower on that down to the point at 
which her next most available article stands, she will send 
that in quantities regulated by the demand for it ; and so 
on to the end. No matter whether the articles be one or 
many ; no matter whether the trade be a direct, or an in- 
direct, trade ; the profits in all cases will depend, first upon 
the ratio of the cost of what is rendered to what would 
otherwise be the cost of that received ; and secondly, upon 
the relative intensity of the two demands. The greater the 
relative efficiency of any nation in producing an article 
of expert, and the stronger the demand for that article in 
foreign ports, the more profitable does the trade become to 
that nation. The precious metals, whether produced at 
home, or obtained from other nations by another series of 
exchanges, stand here in the same relations as other com- 
modities, and are frequently the most profitable articles that 
a nation can export. 

It follows also from these principles, that what a natiou 
purchases by its exports, it purchases by its most efficient 
labor, and consequently at the cheapest possible rate to 
itself. Only those things, for the procuring of which a 
nation possesses decided advantages relatively to other 
nations, and relatively to its own advantages in producing 
directly what is received in return, are ever exported ; and 
hence, the return cargoes, no matter what they have cost 
their original producers, are purchased by this nation as 
cheaply as if they had been produced by its own most 
advantageous labor. This is a wholly impregnable position, 
and the advocates of restricting foreign trade are challeng3(l 
to try their hand a little at its defences. 

It follows once more from these principles, that those 
men, who deem it needful that each nation should be able 
to " compete " with other nations in eveiy thing, are shallow 
thinkers. Why are they not consistent enough to apply 



FOBEIGN TRADE. 473 

their favorite doctrine of "competing" to domestic ex- 
changes also, and demand that the clergyman shall have 
facilities for "competing" with the lawyer, the tailor with 
the blacksmith, the farmer with the manufacturer, the pub- 
lisher with the author? Will people never learn that all 
exchanges, domestic as well as foreign, depend on relative 
superiority at different points, and that a nation which 
should try to make its success in production equal at all 
points, would be as foolish as an artisan trying to learn 
and practise all trades at once? Suppose the nation to 
succeed, what then? It would supply its wants at a certain 
average efficiency of effort ; whereas, by a thorough develop- 
ment of all its own peculiar resources, it could command by 
exchange the products of the world at a cost not exceeding 
that of its own most productive and efficient exertion. In 
one word, whatever justifies individuals in selecting diverse 
paths of production according to their capacities and oppor- 
tunity, the same justifies the nations in fully drawing out 
their own best capabilities under the conditions in which 
God has placed them, and then, exchanging what costs 
them little for what would otherwise cost them much, in 
enjoying all that the world offers at the least expenditure of 
irksome effort. Such action promotes the common good 
of all the nations, and makes the best of all accessible to 
all, and arms each with the power of all ; while the opposite 
action, by lessening the diversities of relative advantage, so 
far forth incapacitates all for exchanges which are at once 
profitable and stimulating. 

The fifth question is, how do new improvements in machine- 
ry and other enhanced facilities of production in one country 
affect its trade with other countries? The true answer will 
appear, :f we apply this question to the conditions of the 
trade in hand. Suppose France by new methods of silk 
culture to become able to make the silk which before cost $80 
for $50, cottons in France, and silk and cottons in England, 
remaining in natural cost as before, does Fiance alone gain 



474 POLITICAL ECONOMY. 

the entire advantage of the increased cheapness of silk? 
"We will see. The production of silk in France is greatly 
quickened by the cheaper methods, more is produced, more 
is carried to England to buy cottons with, but at the old rate 
of 80 for 96 the English will not take any more silks, and 
the French, who can now abundantly afford it, sines their 
nominal 80 is really 50, will offer more silks for 96 in cottons, 
in order to tempt a brisker and broader sale. They offer, 
say, 96 in silks for 96 in cottons, and if that reduction of 
value of silks in cottons be enough for the equalizatiou 
of the respective demands, the trade will go on on that basis, 
at least for a time ; and as there is now a larger difference 
of relative advantage than before, there will be, as always 
in such cases, larger profits to be divided between the two 
parties. The 96 now offered in silks to the English is really 
only 60 in cost to the French, so that the French gain in the 
trade is largely increased ; they now get for what costs them 
60 what would otherwise cost them 96, a clear gain of 60%. 
Before the new methods of silk culture were introduced they 
gained only 20%. But the English have also gained largely 
by the ingenuity and diligence of their neighbors. Before, 
they gained ouly 20% in the trade at best ; now they get for 
what costs them $100 that which otherwise would cost them 
$144, a clear gain of 44%. Indeed, it might easily happen, 
through the changes in international demand, that even a 
larger share of the benefit of the French improvements 
should accrue to the English than to the French themselves ; 
the share of the French all the while being large, and much 
larger, than if, greedily endeavoring to keep all the benefit, 
they refused to trade at all. Thus we reach again, from 
another outlook, a grand doctrine of exchange, that each 
party is benefited by the progress and prosperity of the 
other. The only way in which all nations can share in the 
benefits of the thrift and enterprise of each other, is through 
mutual international exchanges ; and when each nation sees 
to it that it has a few commodities at least for which there 



FOREIG.X TRADE. 475 

Is a strong demand among foreigners, and in the production 
of which themselves have a strong superiority, it may rest 
assured that it buys all it buys from abroad, gold included, 
at the cheapest rate to itself, and shares a part of the pros- 
perity of every nation with which it trades. 

The sixth question is, which party in foreign trade pays 
the costs of carriage, or does each pay them in equal propor- 
tion? The aggregate cost of transportation to the foreign 
market is so much added to the cost of production, and is 
a deduction of so much from what would otherwise be the 
whole gain of the exchange ; but it is not true that each party 
necessarily pays the whole of his own freights, and there- 
fore, that the party carrying bulky articles is at a disadvan- 
tage compared with the other. He may or may not be at a 
disadvantage. That will depend on the effect of the new 
expense, however divided, on the demand in the respective 
countries. Suppose, that in the outset England pays the 
whole cost of carrying cottons to France, and France the 
whole cost of sending the silks to England ; but as cottons 
are many times more bulky than silks proportionably to 
value, a larger bill of freights would fall to England ; and 
cottons would therefore fall relatively to silks ; but cottons 
and silks both have risen absolutely, that is, with reference 
to a given effort, or with reference to a money standard. 
Suppose that France, instead of 80 for 9G, now has to give 
82 for 9G, and England, instead of 100 for 120 now has to 
give 105 for 120. The French gain in the trade is reduced 
by cost of carriage from 20% to nearly 17, and the English 
gain from 20% to nearly 14 ; but it is by no means certain 
that the trade would go on on these terms; the enhanced 
value of silks might well deaden the demand for them in 
England, more than the relatively less enhanced #alue of 
cottons in France would affect the demand for them. Silks 
have risen in England ")%, but cottons have risen in France 
only 2^% ; it is therefore every way likely that thereafter 
the demand for cottons will be stronger than the demand foi 



476 POLITICAL ECONOMY. 

silks, and if so, the French will have to offer better terms, 
or, what is the same thing, be obliged to pay a part of the 
English freights ; so that there is nothing in the true state 
of the case to justify the conclusion jumped at by some people 
that they who carry heavj" goods are at a disadvantage com- 
pared with those who carry light goods. That will depend 
on the equation of international demand. Nothing in the 
nature of things hinders, that each party shall in effect pay 
the freights of the other, or one even really pay the freights 
of both. 

These, then, are the essential principles of foreign trade, 
brought out, it is hoped, as clearly and consecutively as the 
relative and complicated nature of the transactions will allow ; 
and in the light of these principles it is very clear that for- 
eign trade is just as legitimate as domestic trade ; that it 
rests on the same ultimate principles in the constitution of 
man and in the providential arrangements of Nature ; that 
the profit of it is mutual to both parties, or it would never 
come into being, or, coming into being, would cease of itself ; 
that to prohibit it, or restrict it, otherwise than in the interest 
of morals, health, or revenue, must find a justification, if at 
all, outside the pale of Political Economy ; that to say to 
any body of men who wish to render purely commercial ser- 
vices to foreigners, to receive back similar services in return, 
that such services shall neither be rendered nor received, is 
not only to destroy a certain gain, but also to interfere with 
a natural and inalienable right. 

Notwithstanding this demonstrated identity of foreign with 
domestic trade in motives and methods and mutual benefits, 
there are still some persons who persuade themselves that 
foreign trade ought to be cut short by law, and even yet 
some nations whose public policy it is to make small their 
exchanges with other nations. This persuasion comes, and 
this policy is pushed, under a view and system commonly 
called " Protection to Domestic Industry." This phrase, 
always euphonious and long ago become famous, is very 



FOREIGN TRADE. 477 

little indicative of the true nature of the system sought to be 
described by it ; the scheme itself in every part is in conflict 
with the principles laid down in every part of this treatise ; and 
we must now turn to its origin, methods, fallacies and fruitage. 

1. Let us look at the origin of "Protection." As was 
fully brought out in our opening chapter, the Mercantile 
System, whose wisdom or folly it was to sell many goods 
and buy few so as to have a balance in gold and silver, to 
offer in the interest of such a balance bounties to exporters 
to encourage them to sell and lay prohibitions on importers 
to prevent their buying, was the bad mother of this worse 
offspring misnamed " Protection." The parent is long ago 
dead and buried, but the progeny has not yet found its pre- 
destined death and doom. The taint, however, of its birth 
and breeding rests on it like a curse ; even if let alone, it 
would now have been in its decrepitude owing to the poisons 
in its blood ; but an incurable wound was inflicted on it in 
177G by one Adam Smith, hastening it towards its burial; 
the centennial of that event and of American Independence 
found in it a lingering energy of evil, especially in the United 
States ; and Political Economy, denouncing it as the enemy 
of mankind, hopes soon to throw upon its loathsome carcass 
the last shovelfuls of cleansing earth. 

As a single example to illustrate how Protection sprang 
out of the Mercantile System and how it maintained itself 
after that system became discredited, let us look at the case 
of the English silk culture. As France had great advantages 
for the culture of the mulberry and the manufacture of silk 
in a sunny climate and fertile soil, England naturally bought 
silks of France and 4 paid lor them in her own hardier prod- 
ucts ; so of wines, and other things produced in France with 
special facilities ; but England under the influence of the 
Mercantile System was eager to sell to France a larger vol- 
ume and value of products than she bought of France, in 
order to get the coveted balance, and so, forgetting that 
France be.ieved in the same system too and would surety 



478 POLITICAL ECONOMY. 

retaliate on English goods, England laid heavy restraints on 
the importation of foreign silks in the foolish hope that she 
might make the silks herself and so help the balance of 
trade ; and thus England, damp and cold, in the very teeth 
of Nature's protests, undertook to rival France in the manu- 
facture of silks. As an inducement to capital and labor 
to withdraw themselves from natural and profitable employ- 
ments and undertake the unnatural and unprofitable culture 
of silk, the virtual monopoly of the home market was given 
to them by law. Silks were made scarce and dear bj' pro- 
hibitions on their import, and all buyers compelled to pay 
an artificial price, in the vain hope of naturalizing thereb}' an 
unfit industry, and of continuing to sell to France as much 
as before while getting in return less goods and more gold. 
Of course, France soon retaliated by prohibiting English 
woollens ; the two neighbor nations eyed each other across 
the Channel to see which could steal a march on the other in 
the way of restraints and damage to each other's industries ; 
in William and Mary's reign, Parliament voted that • the 
French trade was a nuisance; and Adam Smith tells us that, 
in his time, smugglers were the chief importers of French 
goods into Britain and of British goods into France. 

But England had the silk industry on its hands. Those 
who had embarked in it under artificial stimulus relied of 
course upon that, and no longer upon their own vigor and 
ingenuity ; they kept clamoring for still greater restraints 
against their foreign competitors ; the idea of Protection 
more and more took the place of the idea of a favorable 
Balance of Trade ; for more than a century the silk culture, 
fenced round and "protected" by these prohibitory laws, 
languished and at times almost expired, for the two reasons, 
that the industry then and there was unnatural, and that 
the manufacturers instead of relying on their own skill and 
energy looked for support to an artificial monopoly ; and it 
would have remained to this day feeble and dependent, had 
not a great statesman, Huskisson, who was denounced as 



FOREIGN TRADE. 479 

"a hardrhearted political economist,'" male a beginning in 
1826 of that system of Free Trade, which raised some forms 
of this particular manufacture, as so many other manufac- 
tures, to an eminence which scouts at the danger of foreign 
competition. The duties on foreign thrown silk were then 
reduced from nearly fifteen to five shillings per pound, and 
on raw silk from nearly six shillings to three pence per 
pound ; then first the English silk culture began to thrive ; 
generally sneaking, it has thriven from that day to this, 
though only in certain forms of the trade, in spite of the 
disadvantages of nature ; the duties were successively low- 
ered till 1860, when duties of every kind on foreign silks 
of every kind were abolished under the lead of Gladstone ; 
and that England, which was to be ruined in 1826 by the 
importation of foreign silks, has exported since 1860 silks 
of native manufacture sometimes to the value of $10,000,- 
000 annually. 1 

"While, then, the origin of Protection is to be sought and 
will be found in the follies of the Mercantile System, its 
maintenance or adoption iu any modern country is solely 
due to the clamor of those who wish to secure an artificial 
market for their wares free from foreign competition. It 
can be historically demonstrated, that no protective duty 
was ever laid in the United States from the beginning of 
the government till this hour, except at the instance and 
under the pressure of the very men who expected thereb} 7 to 
get artificial prices for their wares at the cost of their coun- 
trymen. The late President Garfield told the present writer 
with emphasis that, while he was on the Ways and Means 
Committee of Congress, the individuals and delegations who 
came before that committee to get new duties put on or old 
duties raised, came in the barest selfishness without a thought 
or care but for the extra price of their own products. The 
strength of Protection has been in the greed of men who 
hoped to be aggrandized thereby. 

1 Knight's History of England, v. 21; McCulloch's Diet, ed., 18G9, Art. Silk. 



480 POLITICAL ECONOMY. 

2. We will now examine the methods by which Protection 
seeks to reach its ends. The instrument is called a Tariff ; 
and it will be well for us to see precisely what a tariff is, 
since on this point a great confusion exists in the popular 
mind. The origin of the ivord, as usual, will throw light 
upon the tiling. When the Moors conquered Spain in 711, 
they fortified the southernmost point of the Peninsula where 
it juts down into the Straits of Gibraltar, and by means of 
this castle and town, called Tarifa, compelled all vessels 
passing through the Straits to stop and to pay a certain 
proportion of the value of their cargoes to these Moorish 
lords of the castle ; whence the word Tariff in English and 
other languages. This payment appears to have been black- 
mail pure and simple ; it was extorted by force ; and whether 
there were any pretence of a return service in the form of 
exemption from further pillage or not, the main thing to be 
noticed is, that what was paid was just so much out from 
what would otherwise have been the gains of the voyage. 
The sign at Tarifa was minus, and not plus. This is not a 
very respectable origin of a word which seems very dear to 
some men's hearts, though this is not sufficient of itself to 
condemn the thing described by the word. But the truth is, 
the thing is always true to the origin of the word so far as 
this, that a tariff always takes, and never gives. The only 
phrase a tariff speaks, or can speak, is, Tlwu shalt pay ! A 
tariff, accordingly, may be defined as a body of taxes levied 
in some way upon the exchange of goods. A tariff makes 
always and everywhere demands upon somebody ; and one 
peculiarity of the matter is, that these demands are made on 
and realized from the countrymen of those who get the tariff 
duties put on. How can anybody then intelligently suppose 
that a body of taxes, which the people must pay, can be so 
cunningly adjusted as to become a positively productive agent, 
a spur to the progress of society ? Taxes of some kind are 
indeed necessary, but how they can be made a blessing to 
the payers and enrich the whole society, they must explain 
who suppose that possible, provided they can explain it. 



FOREIUX TRADE. 481 

Under this general definition of a Tariff, there are two 
kinds of tariffs, each very diverse from the other in their 
respective purposes, principles, incidence and results. 

(1) There is a tariff for Revenue. The sole purpose 
of a revenue tariff as such is to get rnone^ for the coffers of 
the government by this mode of indirect taxation. It is the 
underlying thought of this kind of tariff, that the government 
shall get all the money which the people have to pay under 
these taxes, except the bare cost of collecting them ; and no 
intelligent, justice-loving people will long tolerate taxes laid 
for any other intent than the support of their government. 
A revenue tariff, accordingly, may be defined as a schedule 
of taxes levied on imported goods icith an eye to equitable 
taxation only. As the sole object is to get money for the 
natioual treasury, such taxes, first, must not interfere essen- 
tially with the bringing in of the foreign goods, that is to 
say, they must be levied at a low rate on each article taxed, 
so as not much to discourage importations and not at all to 
encourage smuggling ; second, experience has shown that it 
is not needful in order to derive a large revenue to lay even 
low rates on all goods imported, but only on certain classes 
of them, so as to burden at as few points as possible the 
ongoing of international exchanges, since the prosperity 
induced by commercial freedom enables a country to import 
and to pa} T for in its own products vast quantities of the 
articles subjected to the tax, so that large revenues come 
from low rates levied at few points ; and third, these taxeo 
should be laid on articles wholly or mainly procured from 
abroad and not also produced at home, for otherwise the in- 
cidence of the tax on the portion imported will raise the prico 
of the portion produced at home also, and thus the people 
will pay more in consequence of the tax than the government 
gets in revenue. These three, then, are the vital principles 
of a revenue tariff, namely, low duties, on few articles, and 
these wholly foreign. 

The best modern example of a purely revenue tariff is that 



482 POLITICAL ECONOMY. 

of Great Britain since 1860. All duties are on one or oilier 
of the following sixteen articles, namely, Beer, Cards, Chic- 
cor} r , Chocolate, Cocoa, Coffee, Fruit, Malt, Pickles, Plate, 
Spirits, Spruce, Tea, Tobacco, Vinegar, and Wine. Of 
these, Spruce yielded no revenue in 1880; Cards, M.ilt, 
Pickles, and Vinegar, yielded in the aggregate only £1,4.91 ; 
leaving the other eleven articles to furnish practically all the 
cuntoms revenue ; but of these, Coffee and its three sub- 
stitutes, and Beer and Plate, furnished only £337,258 in 
the aggregate, so that, the five remaining articles yielded 
£18,915,489 or 98% of the whole. In other words, Fruit, 
Spirits, Tea, Tobacco and Wine, bring in all but 2% of the 
customs revenue of Great Britain. This revenue is remark- 
ably steady in amount year by year, averaging for the ten 
years 1871-80, £20,250,000. If there be also a domestic 
production of any article taxed in the tariff, as Spirits, a 
corresponding excise-tax on the portion produced at home, 
which portion would otherwise be raised in price by the 
tariff-tax to no advantage of the revenue, enables the gov- 
ernment to get all that the people are made to pay in conse- 
quence of the tariff-tax. The sole purpose of such a scheme 
of customs duties as this, which is the only kind of tariff 
economical science can favor at all, is to get revenue with 
the least possible interference with the ongoings of business. 
(2) There is a tariff for "Protection." The ruling aim 
in this kind of tariff is not at all to obtain income for gov- 
ernment, but on the contrary by means of taxes on foreign 
articles to raise the prices of corresponding domestic ones. 
Jf the tariff-taxes be so high and complicated as to keep out 
of the country altogether the foreign articles, and so the 
Tieasury realize nothing at all from them, so much the more 
"protective" do they become, and the domestic producers 
have the entire monopoly of the home market at their own 
prices. A Protective Tariff, accordingly, may be defined as 
a schedule of taxes levied on certain imported goods with an 
eye to raise thereby the prices of certain home commodities. 



FOREIGN TRADE. 483 

The vital points of a protective tariff arc also three, but 
these are the exact oppositos of the three points of a revenue 
tariff, so that it is self-contradictory to attempt to combine 
in one tariff-bill the two sets of contrary elements. In the 
first place, if a tariff-rate is to be protective, that is, to raise 
the price of home products, it must be high, so as either to 
exclude altogether the corresponding foreign products or else 
to make their price by means of the duty added reach the 
point at which the home producers plan to sell their own ; 
indeed, the higher the duties are (up to the prohibitory point) 
the more protective do they become, and the less revenue is 
derived from them ; when the Bessemer steel companies asked 
in 1870 for two cents a pound duty on foreign rails, they 
called it in terms " exceptional protection" and admitted that 
they expected to supply the market and so government get 
nothing in revenue ; and if any one doubts that the sole end 
of protective duties as such is to raise the prices of certain 
home products, he has only to watch the motives of those 
who get them put on and their words and actions when others 
propose to have them taken off, in order to assure himself 
of that truth. In the second place, no system of protective 
duties can be commenced or continued except by means of 
many persons who all alike waut their special products pro- 
tected, and who arc obliged to combine to keep them protected, 
so that protective duties on a few things only were rarely 01 
never found in a tariff ; so contrary are protective duties to 
the common sense of men, that only strong combinations 
of many interests can begin or maintain them, whence there 
must be many taxes if any under this system ; and by an 
actual count of them in 18G8 there were found to be in the 
protective tariff of the United States 2,317 distinct rates of 
duty assessed on different articles, which was strikingly in 
contrast with the revenue tariff of Britain in point of the 
number of things taxed. So needful is log-rolling to the 
maintenance of protection, that the passage of the " Knit- 
goods bill" in the summer of 188:?, for example, was con- 



484 . POLITICAL ECONOMY. 

tingent on the passage of the famous ' ' River and Harboi 
bJ 11 " of that year. In the third place, protective duties are 
placed of course on such foreign goods as are also made 
or grown at home, otherwise their plain purpose would be 
thwarted, while revenue duties select by preference things 
wholly imported, which completes the contrast between the 
two kinds of tariffs ; for instance, Tea and Coffee are the 
best things possible to tax in a tariff for revenue, because 
they are in universal consumption, and, being wholly im- 
ported, taxes upon them do not raise the prices of other 
things, and for this very reason the two were excluded for 
years from any place in our avowedly and almost exclusively 
protective tariffs ; and therefore, the three vital principles of 
Protection must be conceded to be high duties, on many lands 
of goods, the counterparts of which are made or grown at home. 
The best and worst specimen of a protective tariff that 
the world has ever seen was in operation in the United States 
for twenty years and more from 1862. Its inner history is 
not yet known fully by the public, but enough is known to 
expose the motives and condemn the action of all those, 
whether constituents or congressmen, who, knowing what 
they were doing, contributed to build up gradually that mass 
of incongruities and iniquities. Attempts more or less suc- 
cessful were made at various times and at different points to 
conceal from the public the impulses that were really behind 
the provisions of this tariff, and even the amount and the 
mode of the incidence of its taxes ; many of the most pro- 
tective duties were complex, combining upon the same arti- 
cle the specific and ad valorem taxes, as for instance, upon 
Blankets " 50 cents per pound and 35% ad valorem," so tint 
it was difficult or impossible for the common reader of ihe 
tariff to ascertain how much the tax really was ; much of 
the language of the instrument was to the last degree in- 
volved and uncertain, often leading to disputes and litigation , 
and sometimes covering up a half-hidden purpose ; the last- 
in gs and rubber webbings of the shoemakers were inadTei> 



FOREIGN TRADE. 485 

tently covered by a tariff-description designed for another 
purpose, to the consternation of that great interest, which 
asked for no "protection" for itself, but wanted its raw 
materials at their natural price; and the iron industry of 
Pennsylvania was bitterly angry at Secretary Sherman, who 
construed a line of the tariff relating to cotton ties used "i 
the South more favorably to the planters than to the iron- 
workers, although the latter were strongly protected at every 
point (even at this) in the teeth of the interests of the con- 
sumers of iron. There were fifty descriptions of articles 
of iron and steel taxed in the tariff, and the average rate of 
duty on these in 1870 was 77% ad valorem, and this was 
about the average rate for the twenty years ; but on special 
articles of prime necessity, as steel rails, the duty varied 
under the rate of $28 a ton put on in 1870 from 85 to 100% 
ad valorem; and the purpose of this duty was clearly seen 
in an average price of domestic steel rails in this country 
$24.41 a ton higher than in England for the eleven years 
1870-80, in other words, 87% of the duty paid on the small 
part imported was added to the average price of the large 
part produced at home during those eleven years. That this 
enormous artificial gain redounded wholly to the profit of the 
capitalists, and not at all to the benefit of the laborers, is 
shown by the census of 1880, which gives $393 as the aver- 
age pay for that year of the persons employed in the iron 
and steel industries of the country. Only 8.8% of the value 
of the products of the Bessemer steel industry in 1881 wen* 
to the laborers employed, while G6.9% of the same went to 
the capitalists as profits (Senator Beck) . 

It is impossible to tell exactly how much more the people 
of the United States were compelled to pay for their com- 
modities in consequence of tariff-taxes than the Treasury 
received as the direct product of them during 18G3-82, but 
an approximation can be made within the truth whose results 
are fitted to startle the minds of all good citizens. The 
average annual tariff-income for those twenty years was in 



486 POLITICAL ECONOMY. 

round numbers S158,000,000 ; but the ground-thought of the 
tariff in all those years was not to get an income for govern- 
ment but factitious prices for protected capitalists, and during 
the last half of the time there were no tariff-taxes on Tea 
and Coffee, which had been before the chief revenue taxes ; 
if now we may fairly suppose, that on the average for each 
1 foreign article paying a duty into the Treasury there were 
4 domes^* articles raised each in price as much as the for- 
eign articic paid in duty, then it follows, that the people 
paid in each of those years under chiefly protective tariff- 
taxes $632,000,000, or $12,640,000,000 in all, no penny of 
which went into the treasury of the United States ; that this 
is a reasonable supposition appears partly from the known 
proportion between imported and domestic as to several lead- 
ing articles, for example, of steel rails in 1880 the domestic 
was 20 times the imported and the people paid 19 times more 
under the duty than the Treasury got, — on woollen blankets 
in 1881 the Treasury took in less than $2,000 while the peo- 
ple paid in the extra price of blankets more than 1,000 times 
that sum that year, — and on iron goods of all kinds we have 
seen that the average duty was about 77% while the vast 
bulk of the iron consumed is known to be of domestic pro- 
duction ; and that this is a reasonable supposition appears 
further, if we look at the annual average amount of domestic 
manufactured goods, — the census of 1870 gave $4,232,000,- 
000 as the value of home manufactures for that year, which 
we may fairly take as the average of the twenty years undei 
consideration, and if we throw off one-third of those as not 
affe?.ted by the tariff at all, and consider that the rest were 
only raised in price 22%, which is one-half of the average 
rate of duty on dutiable goods, then almost precisely the 
same results will follow as before, namely, an annual aver- 
age of $632,000,000 paid by the people under the protective 
tariff no cent of which reaches the national treasuiy. An 
acknowledged statistical expert, J. S. Moore, calculated from 
data similar to our own, that the people paid $1,000,000,000 



FOREIGN TRADE. 48.' 

mi 1882 extra to the sum reaching the Treasury under pro- 
tective tariff taxes. The average rate of duty on dutiable 
goods in 1880 was officially reckoned at 44%. AVe see, then, 
clearly the methods by which Protection reaches its ends ; and 
we cannot but conclude, that these methods issue in unjust 
burdens on the masses of the people. 

3. We will now look in order at some of the chief Fal- 
lacies by which this wretched system has gained and still 
keeps its hold on the legislation of this country. The system 
is as full of deceit as an egg is full of meat. The so-called 
arguments, by which some men seek to support it, are every 
one of them logically fallacious ; to undertake to give 
economical reasons for suppressing by law a profitable trade 
involves a contradiction in terms ; a profitable trade may 
property be suppressed on grounds of Morals, Health, or 
Revenue, provided a clear contrariety to those can be shown, 
but reasons from economics are precluded because the only 
ground for trade at all is the gains of it ; and in the folio-wing 
paragraphs we shall expose not only some of the logical 
fallacies, but also other falsities and contradictions. 

(a) One of the main fallacies of Protection is the old one 
that pervaded the Mercantile System, namely, that a country 
may continue to sell to other countries while putting legal 
obstacles in the way of buying from those countries. The 
inmost nature of trade explodes this fallacy. The only rea- 
son for selling any thing is to get in return that for which it 
is sold, which is always more desired and furnishes to the 
seller the only motive for the trade; but Protection puts 
large obstacles in the way of one's getting his pay back, 
which is only another way of saying that it puts large obsta- 
cles in the way of his selling at all, since foreign goods are 
the market in which domestic goods find their vent, and 
restrictions on the taking in of foreign goods are in effect 
restrictions on the sending out of domestic goods, ^l markt t 
for products is products in market. Goods exchange against 
w.ch other in the markets of the world, even more than in anv 



488 POLITICAL ECONOMY. 

one domestic market ; because, small as is the part played 
by money in any one country as mediating its exchanges, 
still smaller is that part in international exchanges, since 
hills of exchange drawn on cargoes both ways offset each 
other leaving relatively small balances to be settled in money. 
Exports go forth to seek imports, and to pay for them ; but 
if these be lessened, as is both the purpose and the effect of 
protective duties, then the exports are lessened of necessity. 
If a nation will not buy, then, so far forth, it cannot sell, 
because buying and selling are inseparable parts of one whole. 
Just so far as a protective tariff keeps foreign goods out , 
which would otherwise come in, so far it keeps domestic 
goods in, which would otherwise go out to a profit. Protec- 
tion, therefore, is a two-edged sword smiting right and left, 
compelling people to pay more than is just for much that 
they buy and to sell for less than is just much that they sell. 
To the direct losses of a people plundered by " protection" 
in the values of their supplies made artificially high, must be 
charged their indirect losses in the values of salables made 
artificially low, — each in the case of the United States a 
monstrous sum. Then add to these two columns the derange- 
ments, the curtailment of natural resources, the deviations of 
trade from its freely chosen channels, the loss of markets 
hard to regain, marches stolen on a country by wiser nations, 
the ill-will begotten of restrictions, and the liability to retali- 
ations in kind, — all incalculable and enormous. 

(6) A second chief fallacy of Protection is the common 
representation of tariff-taxes as if they were somehow or 
other a positively productive agent, a spur to the progress of 
industry. For example, Senator Frye of Maine said from 
his place in 1882 : "If there were no public debt, no interest to 
pay, no pension-list, no army or navy to support, I should still 
oppose ' tariff for revenue only' and favor protective duties." 
That is the same as to say, that a protective tariff is a good 
thing of itself without reference to revenue, something worth 
having for its own sake. A moment's attention to the inmost 



FOREIGN TRADE. 489 

nature of a tariff will set all this in its true light. One may 
read a tariff-bill from the beginning to the end, or begin at the 
end aud read backwards, or begin at the middle and read 
both ways, ami all he will find is a series of imperative 
demands to pay something; aud if it be a protective tariff, 
he will find heavy demands, frequently a sum to be paid 
equal to the value of an article before the purchaser can touch 
it, and what is much worse, demands so cunningly contrived, 
that they stubbornly re-appear in the enhanced prices of 
corresponding goods which never smelled the ocean salt. A 
demand made and met on a Boston wharf instantly re-issues 
in other demands made and met a thousand miles from the 
seaboard : a duty on woollen cloth demanded at the seaports 
may double the price of every suit of clothes vended in the 
foot-hills of the Rocky Mountains, though every ell be domes- 
tic cloth out of which these are made. The duty of 122% 
demanded on bunting imported looks comparatively innocent, 
but the deviltry of it is revealed in the effect on the price 
demanded for every yard of domestic bunting, which extra 
price was the only motive for putting the duty on the foreign, 
and the duty demanded duplicates demands everywhere on 
each patriotic citizen who wishes to flaunt the flag of his 
country. The point is, the protective tariff takes out of the 
people not only at the wharves but also over every counter 
at which protected goods are sold, and renders nothing back, 
8) that its symbol is not the engine furnishing productive 
j.owcr, but rather the exhaust-pipe drawing off and dissipat- 
ing the power. 

If it be said, that a part of what is thus taken out from the 
masses of the people passes over in artificial prices into the 
pockets of the manipulators of "protection," that is true; 
but what sort of justice is it to take mone}' by law in driblets 
out of the pockets of millions to pour it in floods into the 
pockets of hundreds? To say nothing now of the wromj of 
that, where is the general gain in it? Is the nation enriched 
thereby? Is there any creative power in all that? Is the 



490 POLITICAL ECONOMY. 

whole auy larger than before ? Can an aggregate be increased 
by mere tricks of ^ distribution ? Less at many points, more 
at few points, and waste and ill-will and loss of markets 
along the whole line, — that is the true story. Waves rise 
on the ocean under the impulse of winds, but there are alway3 
corresponding hollows behind them, and the general level of 
the oceau is not raised however high the waves rise. 

{c) Just before the congressional elections in the late 
autumn of 1882, the protectionists circulated a pamphlet 
written by Edward Young and entitled, " The True American 
Policy — Protect Labor ; ' ' and this title covers up perhaps the 
commonest of the fallacies and falsities of Protection. One 
would think from this pamphlet, and from the usual talk of 
men like-minded with its author, that the tariff " protected " 
native laborers in the same way as domestic goods, or at least 
in some way quite obvious and certain. But the truth is, 
there was never any duty on foreign laborers at all ; these 
come in in immense numbers every year to sell their services 
alongside the native laborers ; there is, and always has been, 
in this country, free trade in labor, and this is just as it 
ought to be ; a miserable treaty stipulation with China 
restricts just at present the immigration of laborers from 
that country, but is scarcely even a temporary exception to 
the general rule of our national policy ; in 1881, there were 
249,572 immigrants hither from Germany alone ; some of the 
most highly protected manufacturers, for instance, of glass 
in Berkshire County, have been accustomed to go to Europe 
themselves from time to time to hire skilled laborers there, 
who met no obstacles as to their persons at the custom-houses 
on their arrival ; and consequently, the implication that 
laborers are protected in the same way that goods are, is 
adapted and designed to deceive both the laborers themselves 
and all others who do not stop to think and to k quire what 
the facts are. Protective duties are put on certah classtes of 
foreign goods to keep them out of the country, or at least to 
raise their price to the point at which the home manufacturer 



FOREIGN TRADE. 491 

is desirous of selling his own goods ; no correspo: ding efforts 
were ever made to make difficult the introduction of foreign 
laborers, whose competition with native and naturalized 
laborers depresses so far forth the rates of wages, and these 
receivers of lessened wages are compelled to buy protected 
goods at enhanced prices, and then are mocked by the pre- 
tence that somehow laborers are protected by the tariff ; and 
thus insult is added to injury, and a deserving class of men 
^ho have little leisure to look into the intricacies of a com- 
plex taxation are deceived as to their own interests, since 
they sell then- services in an absolutely free market and buy 
their supplies in a strongly restricted market. If laborers 
are not protected as goods are, and they are not, no one has 
ever been able to show how they are "protected" at all; 
and the fact remains, that the capitalists who get the duties 
put on for their own benefit are the only persons, if anybody, 
who get any benefit from them. 

(d) It is frequently alleged, that protective duties tend to 
raise the wages of laborers in the protective countries, and 
the relatively high rates of wages in the United States while 
under protective duties are often appealed to as confirming 
the assertion. Here is a gross and harmful fallacy. It is 
all the more harmful because the victims of it, who are the 
laborers themselves, are also the victims of the policy itself 
sought to be upheld by it. So far as the alleged proof 
drawn from the United States is concerned, it is an instauce 
of the fallacy called in Logic post hoc ergo propter hoc, that 
is, the fallacy of arguing because one thing follows after 
another that therefore the latter is the cause of the for- 
mer ; an instance of this fallacy would be, the day follows 
uniformly after the night and therefore the night is the cause 
of the day ; and just so, high wages are paid after protective 
duties are put on and therefore the duties cause the wages. 
This form of argumentation is always fallacious, unless a 
natural tie of connection can be sho^ 1 between the prece- 
dent and the consequent, and unless it can he probably shown 



492 POLITICAL ECONOMY. 

that nothing but the precedent could cause the consequent. 
In this case the reasoning is wholly bad, because no tendency 
whatever can be shown from the nature and operation of the 
precedent, " protective duties," towards the bringing in of 
the consequent, "high wages;" and because obvious and 
sufficient reasons adapted in their very nature to secure high 
wages can be shown to have preceded and caused them. 

We will first demonstrate, that protective taxes lessen of 
necessity what would otherwise be the rates of wages pi e- 
vailing in the protected country, and then give some facts 
and figures confirming the proof and exposing the falsities 
of the opposite doctrine. 

The original trade interfered with by protective taxes is 
always profitable, otherwise it would not be carried on, and 
only asks to be let alone to maintain itself as profitable. 
There is a natural market for the things a nation has to sell 
in the foreign things offered against them ; now, when this 
profitable interchange is going forward, Protection steps in 
and cuts off in part or in whole this natural market, and 
compels the home things to be sold in a restricted and less 
profitable market, by putting heavy taxes on the intro- 
duction of the things seeking these home products in ex- 
change ; the reason always given for thus depressing a 
profitable market is, that certain other home things presently 
unprofitable to make or grow may be encouraged and fostered 
by this new market made artificially high to those who buy 
the protected things, but also at the same time and by the 
same cause made artificially low to those who formerly sold 
their goods abroad ; the advocates of protection do not 
claim that branches of business which would otherwise be 
profitable and self-supporting should be protected, but only 
the weak and less profitable kinds ; let it be noted, that 
"protected" branches of manufacture are by supposition 
and confession unprofitable, otherwise it would be idle to try 
to persuade the people to be taxed to help them along ; and 
so to bolster ip these, protective taxes virtually destroy 



FOREIGN TRADE. 403 

other branches of industry, which only ask that their natu- 
ral market shall be let alone in order to maintain an inde- 
pendent and profitable existence. Is it possible on any 
grounds to characterize in terms of respect so short-sighted 
aud miserable a policy as this, and especially on the alleged 
ground of higher wages to follow it? Why, Protection 
starts by withdrawing capital and labor from profitable em- 
ployments, and putting them into what is confessed to be 
unprofitable employments ; aud how can that process raise 
wages, or even keep them up to the old point? Protection 
■proceeds to destroy a market for the exportables of a country 
by putting barriers in the way of taking in importables to 
pay for them ; and how can this process of stabbing home 
products which want to go out for a profit raise wages, or 
even keep them up to the old point? Protection achieves 
high prices for most of the things the laborers have to buy, 
since its very object is to make them scarce and dear by cut- 
ting off foreign competition in them ; and pray how can this 
process lift the purchasing-power of wages, or even keep it 
up to the old point? 

On the contrary, Free Trade tends powerfully to raise 
both the nominal rates and the purchasing-power of wages 
in any country in which Protection had found place, let us 
say, the United States ; because under free trade all natural 
and profitable home products find their natural and profitable 
Markets ; because the varied objects of use and elegance 
offered «to our desires by international commerce stimulate 
labor and capital to create the home products with which to 
1 uy them ; because the only possible way for us to obtain the 
results of foreign toil, is to offer in exchange the results of 
domestic toil ; because the more we buy of foreigners, the 
more home labor must be employed at those points at which 
we have the greatest advantage over those foreigners, and 
hence the most profitable points possible, to make or grow the 
goods with which to pay for those foreign goods; because 
demand for labor is always strongest when exchanges are 



494 POLITICAL ECONOMY. 

most constant and natural and profitable, and wages are 
always highest (other things being equal) when the demand 
for labor is strongest ; because a world market is ever better 
than a one countiy market ; because just so far as tariff - 
taxes keep foreign products out, they deprive the cheapes 4 
domestic products of their dearest market, and thus discour 
age domestic capital and labor and of course lessen their re~ 
wards; because foreign products are always worth more at 
home than the domestic products which purchased them, and 
a part of this excess always goes in wages to laborers making 
more domestic products of the same sort ; because the neces- 
saries of life are always cheap under free trade, and a given 
rate of wages goes very far in buying, which is additional to 
laborers to the demonstrated gain in the rates of wages ; and 
because as a matter of actual experience, a general rise of 
wages never failed to accompany the adoption of a free 
commercial policy by a nation whose trade was previously 
restricted. 

It may be admitted, that protective tariff-taxes put on for 
its especial benefit may stimulate for a while a certain branch 
of manufacture, may concentrate capital in it, may call 
laborers into it, and may perhaps increase for a time the 
previous wages of those laborers ; but the inevitable competi- 
tion will very speedily reduce wages in that department to 
about the average level of other departments in that region, 
and protected manufacturers were never known to pay wages 
one iota higher than the lowest sum at which competent 
laborers can be hired. They are not at all to be blamed for 
this, and they themselves are often subjected to sharp com- 
petition in production by other manufacturers eager to avail 
themselves of the new inducements, the business is shortly 
overdone, chills succeed to fever, the market is now restrict- 
ed and of course easily clogged, some of the mills stop and 
the hands are discharged, the boasted wages disappear, some 
of the mills combine to work short time and so lessen pro- 
duction to ease the market and the wages received must be 



FOREIGN TRADE. 495 

averaged down to the nine mouths' work aud the three 
mouths' idleuess. The dauiuing mischief of the system is 
the market made short by law ; promised wages have tc be 
reduced as the goods become sluggish ; the workmen do not 
clearly see the grounds of this, as they have been ovci and 
over assured that Protection makes high wages ; they com- 
bine and " strike " to resist the reduction ; owners are often 
glad to have them do this, so that the market can get 
cleared ; but where are now the wages, and who feeds the 
hungry mouths, and what assurance can be had that when 
the work begins again they can get even the old rate of pay ? 
Strikes and Protection naturally go together, because low and 
broken wages naturally go with protection. It is a note- 
worthy fact in the United States, that more strikes have 
happened in the protected industries than in others, and 
that the worst strikes have happened in the most highly 
protected industries. The spring and summer of 1882 wit- 
nessed a combination of laborers stretching half across the 
continent, to resist a reduction of wages in the iron and 
steel industries, whose average protection was 77%, and 
whose success in holding out against the strike and bring- 
ing the workmen back after mouths of idleness on terms 
dictated by capital and not by labor is the best commentary 
on the unnatural alliance between Protection and Labor. 

John Bright is a good authority for the statement, :bat 
English wages begau to rise with the removal of the Corn- 
laws in 1846, aud steadily rose on the whole as other restric- 
tive features of their tariff were repealed, till 18C0, when the 
Commercial treaty with France was made ; and rose slowly 
but steadily after and by means of that treaty, till on the 
whole average they were more than one-quarter, and in many 
departments fully one-half, greater than when the free era 
began ; and this is no instance of post hoc ergo propter hoc 
reasoning, because no other cause of this rise could be 
reasonably alleged, and the hours of labor and the prices 
of food and other necessaries had been much reduced iu 



496 POLITICAL ECONOMY. 

the mean time. Since Bright' s testimony was given, the 
upward movement of English wages has progressed, until 
in the year of grace 1882, reliable statistics make them not 
only by all odds the highest in Europe but also as compared 
with Germany, for example, more than 100% higher. An 
official document published in the last-named year by the 
United States makes it nearly certain that English wages 
in textile manufactures are higher than the corresponding 
wages in the United States. C. D. Wright, the officii 
statistician of Massachusetts, had previously stated as the 
result of data gathered by him, that the wages of English 
weavers were higher than those of American weavers ; and 
Consul Shaw more than confirms this from independent data 
in the document just alluded to. James Thornly of Man- 
chester came to the United States in 1879 as the represen- 
tative of a journal devoted to textile manufactures, and 
carefully worked out the data for a comparison of wages 
in the two countries. Taking four English districts and 
four American, and comparing widths, reeds, picks, lengths 
and weights of products, so as to be sure that he is compar- 
ing identical services in the two, Thornly finds that the Eng- 
lish weaver is paid an average of 26.94 cents to 20.70 cents 
paid the American weaver, which is 30% more. Thornly 
concludes that, in textiles, American wages are quite as 
low as English, and that the disadvantages of American 
manufacturers (if any) arise from " the weight of taxation, 
clearness of coal, and the great expense of mills and machine- 
ry." The same nominal wages in the hands of an English 
operative will buy far more than in the hands of an Ameri- 
can, for the reason that a free trade country has commodi- 
ties cheap and a protectionist country has them dear. Mr. 
Wright has officially shown, that, while nominal wages rose 
in Massachusetts in 1860-81 31.2%, the prices of necessa- 
ries rose in the same time 41.3% ; so that, after twenty years 
of "protection," the laborer ^ould only realize in comforta 
90% of what he had before ! 



FOREIGN TRADE. 407 

The late Edward Harris, the most successful manufacturer 
of his generation, told the writer some years ago as the 
result of his experience in cottons and woollens, that the 
element of wages was about 1G% of the cost of the fabrics, 
and the element of materials 60%,. The census of 1870 
strikingly corroborated this statement. So did tha census 
of 1880. According to the latter, the woollen products of 
that year were $207,099,504, of which sum wages paid were 
18%, and materials used were 63%. In the silk industry of 
the same year, wages were 22% of the value of the product, 
going to 34,000 operatives, two-thirds of whom were women 
and girls. In a general way it may be said, that icages in 
the manufacturing and mechanical and miuing industries of 
this country constitute one-fifth of the value of the annual 
product, while the materials used in the same are three-fifths 
of that value ; materials, then, are an element in the cost 
of manufacturing three times as significant as wages ; free 
trade would surely increase the element of wages, and just 
as surely lessen the element of materials, in the cost of manu- 
facturing, but cheap materials are vastly more important 
than cheap wages; suppose wages be 20% greater in this 
country than in England, and the efficiency of labor the 
same, then the disadvantage of our manufacturers on the 
score of wages paid is only 4% of the whole cost of manu- 
facture, a bare trifle ; but suppose materials to be enhanced 
in price by protection 40% on the average, then the dis- 
advantages of our manufacturers on the score of dearer 
materials is 24% of the value of the product, almost one- 
quarter. The disadvantages of American manufacturers, so 
far as the cost* of manufacture are concerned, are not in the 
rales of wages paid, but in the factitious prices (caused by 
Protection) of all materials used, and of all machinery, 
buildings and repairs. The instant repeal of all protective 
duties would put our manufacturers in a better posture at 
once, though they would have to pay for some time the fine 
and penalty of a false system in the interest on their build- 



408 POLITICAL ECONOMY. 

ings and machinery, because materials (a chief factor in their 
expenses) would be instantly cheapened, and especially be- 
cause foreign markets would be gradually opened to them. 

The distinction must never be lost sight of in this discus- 
sion between Rate of Wages and Cost of Labor. The first 
may be high and the second low at the same moment. Cost 
of labor in manufactured products in the United States is 
lux relatively to that in foreign countries, being on the avei* 
age one-fifth of the value of the products, while the cost of 
raw materials is high relatively to that in other countries, 
being on the whole three-fifths of the value of the prod- 
ucts ; by the census of 1880, wages in the petroleum manu- 
facture were $4,381,572, raw materials were $34,999,101, 
and products were $43,705,218, that is, wages were 10% and 
materials 80% of the products, or throwing out the crude 
petroleum, $16,340,581, materials were 43% ; to account for 
this lower cost of labor, we have (1) the greater efficiency 
of labor here, owing to stronger and higher motives cor"\mon 
to the laborers, to a more energetic tone of things gen /ally, 
and to a more universal use of labor-saving appliances ; 
(2) fewer persons are employed here than abroad in establish- 
ments doing equal work, because here are less supernumera- 
ries and fewer grades in authority and less persons pensioned 
by the establishment, each laborer here being put on his or 
her full power of work ; (3) laborers are more temperate 
and steady here, and are more uniformly ready to begin 
their work on Monday morniug, while the Sunday's debauch 
belates and enfeebles many foreign laborers ; and (4) more 
hours per week are given to labor here than abroad, British 
hours being 54 and ours 60 to 66 ; and to account for 
the high relative cost of materials, we need only refer to the 
high protective tariff, whose design it is -to raise their price. 
The endless opportunities of Agriculture in this land are 
the steady force that lifts on wages and keeps them to their 
actual height. Cheap and fertile farms to be had almost 
for the asking are open to all laborers and all immigrants, 



FOREIGN TRADE. 490 

who dislike manufactures or are discontented with their 
wages in an}' other line of work, and this on the one hand 
reduces the Supply of laborers in the mills and factories and 
on the other keeps up the rates of wages there to a point 
marked by the average success of labor in agriculture. If 
protective tariff-taxes were abolished, which compel the 
formers to pay more than is right for most which they buy 
and to sell for less than is right most which they sell, then 
agriculture would be far more profitable than it is, and 
then also wages iu all departments would tend to rise to the 
full height marked by a free and prosperous agriculture, — a 
stroke that would enormously benefit all the people of the 
United States. 

If there were any thing solid in the allegation that " pro- 
tection " raises rates of wages, then it ought to follow that 
wages are higher in protected industries than in others. But 
the}* are not. Just the reverse is often witnessed. Said the 
Albany Evening Journal in February, 1883 : -- Bricklayers 
and carpenters get better pay than iveavers and miners. We 
all know that. Yet the former are not mentioned in any tariff 
scheme, and the others are alleged to get cdl the benefits of 
protection. We pay our printers higher wages than a like 
number of operatives in the Harmony Mills of Cohoes ever 
got. Yet type-setting is not under the shadow of protection's 
Chinese wall, and spinning is." 

(e) Another common fallacy of Protection is that called 
by the logicians the fallacy of composition. It is remarkable, 
that in nearly all protectionist arguments, the eye of the 
reasoner is directed wholly to some one protected industry 
and not at all to the system as a whole, and yet the conclu- 
sion sought to be drawn is meant to apply to the whole sys- 
tem. An example of this fallacy would be : There are good 
reasons for thinking that one of the 12 jurors is biassed, 
therefore, it is probable that cdl the jurors are biassed. An 
artificial market advanced 50$, for all the products cf a 
woollen factory by means of a protective tariff-tax would 



500 POLITICAL ECONOMY. 

seem, so far forth, to be a very good thing for the woollen 
factory owners, and the point would seem plausible that, 
were the tariff-tax removed, very considerable harm would 
come to those owners ; but all that does not begin to prove 
that protective tariff -taxes are a benefit even to all factory 
owners, still less to the people at large, nor does it begin to 
prove that the removal of all such taxes would be harmful 
even to factory owners, still less to the people ; extend the 
view, first, to the consumers of those woollen fabrics, who 
f re obliged to pay one-third more than is natural, and whose 
loss completely balances the gain of the factory, — no bene- 
fit on the whole ; extend the view, second, to all the protec- 
tive tariff-taxes then and there levied, many of the enhanced 
prices caused by which these very factory owners have to 
pay on their materials and machinery and buildings, and it 
is quite likely that they pay more than they get back, and 
very probable that the abolition of all these taxes would be 
a great relief and permanent benefit to them even as factory 
owners and still more as citizens ; and extend the view, 
third, to all those home farmers and manufacturers whose 
freely chosen market was cut off by all those restrictive 
tariff- taxes, whose losses cannot be made up to them from 
any quarter, and the aspect of the whole matter is very 
different from what it was at first, the probability becomes 
a certainty that the repeal of the taxes would be a vast 
national gain, and the fallacy of composition in this case 
becomes obvious. 

How freedom of trade recovers the foreign market to home 
producers is beautifully shown in the experience of Great 
Britain. In 1849, when the corn-laws disappeared, British 
exports were only $10.93 per capita; in 1859, they had risen 
to $22.11 per capita, an increase of 105% in ten years ; in 
18G9, the remissions of import-duties being of course fewer 
for that decade, the exports per person rose to $29.79 ; and 
in 1880, they were $32.35. The exports of the United States 
have been of ccirse less than they normally would be pel 



FOREIGN TRADE. 501 

capita, because it has been the policy to shut out imports ; 
which aloue pay for exports, making the exports in 1880 
$17.02 for each person, only about half what the British sold 
per person. 

(/) Another fallacious and pernicious assumption of Pro- 
tect ion is, that manufactures will not come into a new ro'in- 
try unless the} 7 are coaxed in by taxing the people heavily 
to support them. In connection with this false assumption, 
Protection always makes a promise which it never yet was 
known to fulfil, namely, that after the industries have been 
fostered a while by restrictions in their favor the} 7 may then 
be let alone to go forward under freedom. The promise 
may be dismissed with the remark, that no instance has been 
"known to occur in the whole history of " protection" of an 
infant industry fostered by it reaching a point at which in its 
own judgment it could forego the foster-hand and take care of 
itself, but on the contrary it has been usual if not universal for 
such dependent to clamor for more and more as time went on 
until the people refused outright to act as wet-nurse any longer. 
The assumption may be easily disproved, first, by letting a 
little common sense in upon it, and second, by a simple state- 
ment of facts in relation to our own colonial history. The 
assumption is, that a people cannot prosper until they are 
roundly taxed, that a new colony settled on fertile land and 
surrounded by all natural resources cannot get their ploughs 
and carts and clothes and houses by the mere application of 
labor and capital to land and water, but must first authorize 
a few of then number to levy taxes on the rest before the 
colony can come into any considerable diversity of occupa- 
tions. The hoof and tail are quite visible in this assumption : 
the men who make it are men who like to live without work 
at the cost of those who do work. If the few can only per- 
suade the rest to let them do the taxing, the same skill that 
persuades will not be slow to think out specious pretences. 
plausible reasons, and even patriotic considerations. But 
the simple truth is, that diversity of employments is looted 



502 POLITICAL ECONOMY. 

in human nature and in the circumstances amid which God 
has placed men, and so far is it from being true that taxes 
and restrictions are needful in order to foster manufactures, 
taxes and prohibitions cannot prevent them from springing 
into life ! They are just as natural to men and colonies as 
agriculture is. Indeed, agriculture can scarcely take a step 
without them. The farmers must have ploughs and carts 
and other implements, and, depend on it, there are some 
natural mechanics in that colony. Clothes are as needful as 
food, and spinning and weaving in some form will begin at 
once, and prohibitions will be powerless to stop them. Manu- 
factures require capital indeed, and on a large scale, a large 
capital. So does agriculture just as much. The progress of 
these two is interdependent. They naturally keep step to the 
music of each other. Large capitals are the growth of time 
and of frugality and of natural facilities under freedom. No 
new society can come at once into all the forms of industry 
which adorn an old established State ; there must be a grad- 
ual growth of capital and of skill, and as these increase, one 
branch of industry after another comes in and finds a stable 
foothold ; and as capital and population and a possible division 
of labor further increase, and the rate per centum of capital 
goes down, many branches of manufacture become profitable 
which it would be sheer folly to undertake at an earlier period. 
Diversity in manufactures is good for any country, but only 
a natural and profitable diversity, in which each branch can 
stand on its own legs, and not find it necessary to tax all its 
neighbors to make its own profits equal an average of theirs. 
The only sound rule is to enter upon branches of indusl ty 
just so fast as they become profitable, and no faster. 

The history of the colonies which constituted the original 
United States is interesting in this regard. The mother 
country, bound to the doctrines of the Mercantile System, 
was jealous of colonial industries from the start, and as these 
gradually developed in the natural way just indicated, met 
them with growing restrictions and prohibitions. Colonial 



FOREIGN TRADE. 503 

si lip-building, commenced in 1G31, was firmly established by 
the first generation of men inhabiting New England shores. 
The manufacture of linen, woollen, and cotton cloth was 
begun in Massachusetts in 1G38, in Rowley, by some fami- 
lies from Yorkshire ; and became so remunerative in a couple 
of years that some acts of the General Court designed to 
stimulate it were repealed. Brick-making, glass-works, and 
the manufacture of salt, were all begun in Massachusetts 
before 16-40. Tannery and shoe-making began about that 
time, and within 20 years boots and shoes became articles 
of export ; while in 1G-13 the younger Winthrop established 
iron-works at Braintree and Lynn, which, after some losses, 
were successfully prosecuted. So native are manufactures 
to a new country, so rapid was their progress in the first 
century of these feeble colonies, that Parliament, in 1698, 
entered upon a decided policy to curtail colonial manufac- 
tures. Take this law as a sample of many: — " After the 
first day of December, 1609, no wool, or manufacture made 
or mixed with wool, being the produce or manufacture of any 
of the English pilantations in America, shall be loaden in any 
ship or vessel, upon any pretence whatsoever, — nor loaden 
upon any horse, cart, or other carriage, — to be carried out of 
the English plantations to any other of the said plantations, or 
to any other place whatsoever." Thus the fabrics of Massa- 
chusetts were forbidden to find a market in Connecticut, 
or to be carried to Albany to traffic with the Five Nations. 
11 That the country which was the home of the beaver might 
not manufacture its own hats, no man in the colonies could 
be a hatter or a journeyman at that trade, unless he had served 
an apprenticeship of seven years. No hatter might employ 
more than two apprentices. No American hat might be sent 
from one plantation to another." In 1701 the three charter 
colonies are reproached by the lords of trade " with promot- 
ii g mid propagating icoolen and other manufactures prop< r to 
England." In 1721 New England alone had six furnaces 
and nineteen forges, and there were many others in Penusyl- 



504 POLITICAL ECONOMY. 

vania and Virginia. Parliament enacted in 1750 that no more 
mills should be erected in America for slitting or rolling iron, 
or forges for hammering it, or furnaces for making steel ; 
and in certain cases, agents of the crown were authorized to 
tear down such establishments as "nuisances." Plow far 
all the arts of navigation had been carried in the Colonies 
before the Revolution, every one may read in Burke's famous 
speech on Conciliation with America. How far the products 
of the loom, the forge, and the anvil, were already being 
exported, in spite of British legislation, to other countries, 
any one may see in Lord North's last proposals and conces- 
sions to ward off Independence. 1 

(g) Protectionists claim that their system enlarges the 
' ' Jwme market. ' ' Professor Thompson has stated that by 
a persistent policy of protection a home market would be 
created for all the breadstuffs that the country produces ; 
and John Roach, the shipbuilder, expatiated before the 
Tariff Commission of 1882 on the advantages which the 
farmer derives from the better home market created by pro- 
tection. A ridiculous fallacy underlies this claim. A market 
is made of buyers with return services in their hands. A 
bigger home market consists in more domestic buyers than 
before all ready with acceptable pay in their hands. If pro- 
tection can enlarge the home market, it must be either by 
increasing the number of births or diminishing the number 
of deaths in a given time in a given country. Precisely how 
a big bundle of big taxes, which the whole population must 
pay in one form or another, may be made to stimulate births 
or prolong lives, no reasonable man can see, though a pro- 
tectionist may see it. If he can see and show it, his task is 
then but half doue, for he must also see and show how these 
same onerous taxes may multiply return-services in the hands 
of this increased population ! If he try to get out of this 
snug place by claiming that the better ' ' home market ' ' is 

1 See Palfrey's N. E., ii. 53, and iv. 19; Bancroft's U. S., iii. 106, and vii. 179; 
Ninth Annual Report Mass. Bureau of Statistics and Labor, 1878. 



FOREIGN TRADE. f>05 

made by new immigrants with values in their hands, he can- 
not escape by this route, because he must first see and show 
what there is In big taxes to invite immigrants at all ; and 
besides, he is scared even by the handiwork of "pauper 
labor," and of course he is not prepared to welcome the 
" pauper laborers " themselves, of which class as described 
by him the immigrants would mostly consist. As a matter 
of fact, Thompson's " home market " does not seem to have 
kept pace with the production of cereals, or even with the 
restricted products of protected manufactures, as is shown 
by the frequent clogging of the market for all these ; and 
the farmers of Iowa, and of the West generally, do not seem 
to reciprocate the warm glances of love which John Roach 
sends them from the banks of the Delaware. 

(h) One of the bad things about protective tariff-taxes is, 
that, while their main motive and purpose are obvious enough, 
no one concerned in their enactment can possibly foresee what 
their whole action will be in practice ; so that, a general tariff- 
act is never practically what it is supposed to be, and certain 
features of it strike in unexpected places, often to the con- 
sternation of its framers and friends. For example, in the 
wool and woollens tariff of 1867 an inadvertent description 
covered the serges and lastings of certain Massachusetts shoe- 
makers ; and John B. Alley of Lynn, representing them, has- 
tened towards Washington to repair the menaced mischief, 
but met in New York members from the session already 
adjourned, and returned to palliate as best he could to the 
angered artisans the inevitable though undesigned rise of price 
in their raw material. He and they were willing enough that 
other folks should pay protection-taxes, but did not like to 
pay them themselves ; indeed, the protectionists are }'et to 
be found, who relish for themselves the dose they mix in 
glee for others. The tariff-bill just referred to put a high 
duty on the fine foreign cloth used as material by a button 
factory in western Massachusetts, whose owners were strong 
protectionists and commended the doctrine to their neighbors, 



506 POLITICAL ECONOMY. 

but who found the means in the tariff itself of evading the 
payment of the duty themselves by punching and slitting 
the imported cloth in such a way as not to harm it for cov- 
ering buttons, but so as to enable them to claim successfully 
at the custom-house that it was damaged cloth not subject to 
duty ! This they did for years and years, and thus gave prac- 
tical testimony that is worth having to the benefits of free 
trade. Their own opinion of protection was precisely the 
same as that of the detested free traders. Not out of their 
words, but out of their hearts and actions are they to be 
judged. This is not an isolated instance by any means, nor 
were those Galileans sinners above all the Galileans because 
they did such things. 

In the early spring of 1880 the price of white printing 
paper rose rather suddenly about 50%, owing partly to the 
tariff duties on newspaper and the chemicals that enter 
into the manufacture of paper, and partly to patent-rights 
accorded to the owners of machines for making wood-pulp 
for paper ; this effect of complex causes not calculated upon 
by Congress startled the 7,000 newspapers of the country, 
slumberous before to the burdens of others under similar 
restrictions, to make a great outcry for the removal of the 
20% duty on their paper and the 25% duty on types and 
type-metal ; Congress too was startled for once out of its 
venal satisfaction in a false system, because these 7,000 
newspapers stood very near to the sources of political life, 
while the cry of 70,000 ordinary and unorganized citizens 
would not have produced a ripple in that body ; for news- 
papers can voice their own grievances and compel attention 
to them, while the minds of the masses of the people are 
confused as between "revenue" and "protection," and 
besides they have no organs by which to make themselves 
felt in the National Legislature. Commonly, however, the 
unlooked-for effects of a protective tariff strike the farmers, 
the largest and most defenceless class in the community, and 
hence the best possible prey for Protection. For example, 



FOREIGN TRADE. 507 

when the duties upon band and hoop iron of lj to 1| cents 
par pound were laid, it was probably not thought of that 
thin iron bauds would be used to tie up cotton bales for mar- 
ket, but they were found to be very useful for that purpose 
by means of buckles attached, while both the foreign and 
domestic bands were raised in price by the tariff-taxes; at 
Orst, the foreign bands came in as hoop iron, but Secretary 
Sheiman afterwards ruled that they could come in as iron 
"not otherwise provided for," which made a difference of 
about 12 ccuts in the bands needed for a single bale of cot- 
ton, or $720,000 on a crop of G, 000, 000 bales ; the iron men 
of Pennsylvania made gigantic efforts to overturn the Secre- 
tary's decision, conceding that they had under it about 12 
cents protection a bale, but insisting that, this should be 
doubled by the old construction of the clause on hoop iron, 
which would make the tribute of the planters to Pennsylvania 
about $1,440,000 on one year's crop, — so much extra cost 
of production just for tying up the bales ! Tariff-taxes on 
jute (815 a ton), on jute butts (SG a ton), and gunny-bags 
(40%), whether that effect were anticipated or not, are a 
vast burden to farmers in getting their products to market. 
A wheat grower 1 of California lately told the writer that this 
extra cost is a chief item in marketing his wheat, and a 
great discouragement to growers to keep their wheat separate 
from others, and so to aim at the highest excellence and the 
highest prices. In whatever way one looks at it, it is plain, 
that the farmers are the ass that bears most of the burden 
and eats least of the hay of Protection. 

(i) Anglophobia is often manifested and oftener ar pealed 
to by the protectionists. The giant of our childhood re- 
appears to our mature life, singing the old song, — 

" Fee, foo, fum, 
I smell the blood of an Englishman." 

The idea sought to be conveyed is, that for the United 

1 Mr. Montgomery 8. Currey. 



508 POLITICAL ECONOMY. 

States to adopt free trade would be to bow the neck to 
England, would be to copy servilely a country with which we 
have had two wars and many misunderstandings, would be to 
lose somehow the Declaration of Independence and smother 
the screams of the American Eagle. The joke and the 
fallacy come in at the same place. What we have copied 
from our old enemy down to the word and letter and pointing 
is just this system of Protection ! We took it bodily and 
even verbally. Our Navigation Act in its three parts both 
caught the spirit and is couched in the terms of the English 
statutes. There is nothing original and nothing Americas 
and nothing continental in the petty and piddling and devil- 
ish devices of our protective system. It is all insular and 
old-world and antiquated. When Henry Clay called it the 
"American System," Daniel Webster ridiculed the desig- 
nation in the Senate, and pronounced it most un- Ameri- 
can. On the other hand, England has no patent-rights in 
Free Trade. That does not belong to her. It is no more 
English than it is Greek or Roman or Middle-Age. Pro- 
tection itself was not born till the second half of the 17th 
century. England, one of the first to adopt it, was also one 
of the first to cast it off with every sign of loathing, like an 
old garment defiled. Said Gladstone in 1856, before one 
tithe of the benefits and strength of free trade had come to 
England: " TJiere is one domestic feature which I wish it 
were in our power effectually to exliibit to the governments and 
inhabitants of foreign countries. They knoiv by statistics, 
which are open to the world, the immense extension which our 
commerce has attained under and by virtue of freedom of 
trade, and the great advancement that has happily been 
achieved, in the condition of the people; but they do not know 
what it has cost us to achieve this beneficial, nay, blessed 
change; what time, what struggles, what interruptions to the 
general work of legislation; what animosities and divisions 
among the great classes which make up the nation; what 
shocks to our established mode of conducting the government 



FOREIGN TRADE. 509 

of the country ; what fears and risks, at some periods, of 
public convulsion. These were the fine and penalty we 
paid for long adherence to folly. We paid this fine and 
penalty upon returning to the path of wisdom, which too late 
we tuished we had never left." When the United States 
adopts free trade, it will follow, not England, but Reason 
an<l Right and Interest and Natural Law and Good Neighbor- 
hood and the methods of Providence. 

(J) The commonest and shallowest fallacy of protection 
is this, that free trade icoidd flood our markets with cheap 
goods. "When every other word fails, this leaps to the lips 
of our protectionists. From their horror of being " flooded," 
one would think they had been personally present at, and 
had a vivid recollection of, the Noachian deluge. Other 
things indeed may be bad, but to be "flooded with cheap 
goods" is an indignity to which they at least will never 
submit ! Does it betray a secret consciousness that their 
"house is built on the sand," that they have such mortal 
fear of the time when ' ' floods ' ' will come ? One is almost 
ashamed to expose soberly so patent a fallacy in argument. 
The only possible way in which this country can be flooded 
with the cheap goods of foreigners, is to flood foreigners 
with its own cheap goods. Foreigners may not be fully 
enlightened, but they have not yet shown any great zeal to 
give away the products of their toil. If they were so foolish 
as to give their goods, is there an}? good reason why we should 
not take all they will give ? Undoubtedly they are quite ready 
for an exchange of goods ; and if we were up to our oppor- 
tunities, we should meet them more than half way. Our 
producers are every little while complaining of over-produc- 
tion; and would it not be a good thing to find a quick 
market for all this surplus? "Would not these cheap goods of 
foreigners — the cheaper the better — legitimately bought by 
our own cheap goods now liable at any time to lie idle in 
stock be a great relief and blessiug all round? But while 
this plea of the protectionists is worthless as an argument, 



510 POLITICAL ECONOMY. 

it has great force as a confession. It confesses that Protec- 
tion is a barrier to trade. It openly confesses that a pro- 
tective tariff makes things dear. It confesses a fondness 
for Scarcity. It confesses a terror in view of Abundance. 
It confesses that free trade would make things cheap — very 
cheap, as they ought to be. 

(k) A curious fallacy of protection is the sanctity sought 
to be given to a tariff -tax so soon as ever it is gotten upon 
the statute-book, no matter by what means.or in what shape 
it has been put there. The suppressed argumentation is 
something like this : Certain tariff -taxes are now a part of the 
law c f the land ; property has been invested in virtue of this 
tariff-law ; therefore, the tax must be touched gingerly, if at 
all. The just argument would take this form : All laws hostile 
to the public welfare are in their nature void, and should be at 
once repealed ; protective tariff-taxes are radically in conflict 
with the general interests of the people ; therefore, such 
taxes should be at once repealed. A tax levied with the sole 
intent and effect of getting money for the support of a just 
government is a very respectable thing, and all good citizens 
unite in respecting it ; even then, there is nothing sacred 
about it, but it may be brushed aside any day in favor of 
another form "of tax shown to be less burdensome to the 
people ; but a tax levied for the benefit of the few at the 
cost of the many is destitute of respectability, still more of 
sauctity, and no rights of property can be vested under such 
a tax good either in law or morals. A high court in the 
State of New York decided in 1882 that the rights of property 
vested in what is called " watered stock" are null and void, 
because contrary to the general interests of the people. The 
same principle applies to rights of property vested under 
taxes laid in conflict with the common weal. The taxes are 
not respectable in their origin or pui'pose, and any claim that 
they are not to be touched because they have been enacted 
is met at once by the superior claim of the rights of the 
whole people. These indeed are sacred; and no lapse of 



FOREIGN TRADE.' 511 

time can give sanctity to any thing that invades them. If 
we inquire how protective tariff-taxes have been put on in 
this country, we shall find that they have been often put on 
pell-mell, and no previous notice has been given to the people 
that the taxes were coming. Edward Harris paid $58,000 
in gold duties on wool bought, paid for, and on its way to 
this country, when the wool tariff of 1867 came in. If there 
be injustice in taking off such taxes in much the same way 
as they went on, there are a plenty of competent persons who 
cannot see the injustice. How can the abolition of taxes on 
industry do any harm to industries as a whole? How can a 
people be crushed down by a removal of their burdens? 
Suppose every tax of every name in all the earth could be 
abolished to-morrow, what harm would ensue? Would not 
all exchanges go on with multiplied power and profits? 
Taxes are indeed necessary for the support of government, 
but even when wisely laid for that end they are a necessary 
evil, because they take just so much out of what would other- 
wise be*the gains of exchanges. But we have shown that 
protective taxes are the worst possible form of taxes, and 
the only thing to do with them is to abolish them altogether. 
When they are numerous, as with us, they become a uni- 
versal burden, and there are but few of the protected interests 
themselves which would not be relieved by the repeal of the 
whole of them. It would be unjust to repeal a part and 
leave the rest in force, to strike out, for example, the duty 
on woollens and leave the duty on wools, — they should all 
go by the board together. If, however, caution and prejudice 
hedge the way to this simultaneous action, then let the worst 
duties go first, such as those on coal, pig-iron, lumber,- salt, 
wool, that is to say, materials. 

It is a notion cognate with this of the sanctity of taxes, 
that it is needful to publish in connection with the items of 
tariff-taxes what is called a Free List, that is, a long list of 
articles not taxed; just as if the dear people Were entitled 
to be taxed on every thing that is ever imported, but as a 



512 POLITICAL ECONOMY. 

gracious boon from their servants in Congress a large number 
of articles are actually exempted ! On an actual count of 
them in an official copy of the tariff in 1882, a list of 388 
articles were found to be enumerated duty-free, of which the 
only ones of much consequence were Tea and Coffee. "Why 
not have a short tariff -list of taxed articles, and assume that 
every thing else is free ? 

(?) So full is Protection of contradictions and absurd ties, 
th.' 5 one often hears propounded a false notion the opposite 
of the one just considered, namely, that Free Trade is a sort 
of heavenly Theory and would require a Millennium to work 
in. We are told in one breath that protective tariff-taxes 
are too sacred to be touched, and in the next that free trade 
is quite too holy for this wicked world ! No missile has been 
so often hurled at Free Trade as this, that it is a Theory, as 
if that, if true, would be enough to condemn it. Not to 
seem illiberal, the protectionist is usually willing to concede 
that it is a good theory, though of course it will not work in 
practice. He forgets in all this three truths : first, tfiat every 
thing that is done of set purpose, and not by mere chance, 
is done on some underlying theory or ground of action, and 
that it must be better in the end to do things on a good 
theory than on a bad one ; second, that there is nothing 
more worthy of respect than a good theory in harmony with 
the facts and drift of the universe, such as, for example, 
Newton's theory of Gravitation ; and third, that the conces- 
sion of the theory as good, concedes also that the practice 
is good under it, because the only way to tell whether a 
theory is good or bad is to test it by practice, since that is 
necessarily a bad theory that does not work well in practice. 
Wonderfully simple and primitive is the postulate which 
makes Free Trade a theory at all, namely this, that any two 
parties wishing to exchange services for their mutual benefit 
should be allowed to do so, provided no other man's rights 
are infringed thereby. Free trade does not compel anybody 
to trade, does not even recommend anybody to trade, it merely 



FOREIGN TRADE. 513 

ciUmcs thu.se to trade iclto think it for their advantage. The 
only theory in the premises is, that men are their own best 
Judges iu the matter of their own exchanges, and that gov- 
ernments have not the right and still less the wisdom to 
restrict this advantageous interchange. No far-off millen- 
nium is required for the play of thtse principles, no benevo- 
lence beyond that natural to men, nothing but an enlightened 
self-interest, which respects the rights of others while it in- 
sists upon its own. Thirty-eight neighboring States of this 
Union practise an absolute free trade with each other and 
like it very much, and are not conscious of any other than 
earthly motives in the matter ; man}' of them have similarly 
practised towards each other for a century, and every citizen 
concedes that it has proved highly beneficial ; why should not 
the extension of the same freedom, with the same motives, 
as between neighboring and distant foreign States be highly 
beneficial also? Does the mutual benefit of an exchauge 
depend upon the accident that the parties to it are citizens 
or subjects of the same government? The south end of 
Vermont trades freely and advantageously with its neighbors 
across the line in Massachusetts ; is there any good reason 
why the north end of Vermont should not trade just as freely 
and advantageously with its neighbors across the line in 
Canada? 

There is a little bit of reason after all in the protectionist 
reference to the millennium in connection with free trade : 
it betrays an inner sense that two such good things are in 
harmony with each other : and they are : free trade, though 
testing on self-interest only, tends strongly to lessen wars, 
to increase intercommunication and good neighborhood among 
nations, to unify the human race on earthly grounds of inter- 
dependence, and so to aid the coming in of the better and 
higher Gospel, itself the prelude to millennial glories. Just 
here, we cau see on the other hand, how much of a theory 
Protection is, and how bad a theory it is. Its postulates arc 
many and complicated, are contrary to the natural impulses 



514 POLITICAL ECONOMY. 

of men and hostile to a natural state of things, den_ in effect 
that exchanges are mutually beneficial, assume that somebody 
else rather than the parties concerned are better judges of 
their interest, betray an obvious aspect of greed on the part 
of those who get protective taxes put on, cause in practice 
dissatisfaction and ill-will as between citizens of the same 
country, and set all the nations over against each other in a 
posture of armed neutrality if not of actual hostility. For 
it must be observed, that, if these postulates are sound at 
all, they are sound for all nations and for all time. Happily, 
they are not sound for any nation at srny time. 

(on) Because protective tariff-taxes have been enacted in 
this country, sometimes by large majorities, protectionists 
have falsely assumed that their system rests back on public 
opinion favorable to it. All that can be said with truth is, 
that public opinion for twenty-five - years has passively tol- 
erated it, while the force that has held it up has not been 
public opinion at all, but log-rolling combinations among 
interested men. An analogous instance was that of the 
River and Harbor bill passed in the summer of 1882 over 
the veto of President Arthur. That bill was full of jobs. 
Creeks and other waters or water-courses not down on the 
maps came in for a share of the spoil. No one pretended 
at the time that public opinion favored the bill, nor was that 
necessary ; afterwards many congressmen lost a re-election 
in consequence of having supported it, so really hostile to 
it was public opinion. One locality log-rolled with another, 
and one interest with another interest, and not even a veto 
could stop its enactment. A knit-goods bill, doubling the 
duties on those fabrics, was pending at the same time. 
When Connecticut members were reproached at home for 
favoring the Harbor bill, t^°y replied, " Tlie knit-goods could 
not have passed unless the Harbor bill passed too." Here in 
is. " You tickle me, and I will tickle you." Knit-goods are 
supposed to be woollen goods, and "protection" accorded 
to them to be protection for the woollen interest. While this 



FOREIGN TRADE. 515 

knit-goods bill was pending, the writer met an old pupil, : 
manufacturer, and asked him, "What are }'0u running on 
now? " " On these knit-goods they are making such a fus < 
about at Washington." ''I thought you spun and wove 
cotton." "I do." " Are not knit-goods woollen ? " "No" 
' ' Is there no wool in what you are making ? " " Not a shred , ' ' 
" I thought this bill was to protect woollen manufacturers." 
'• Oh! ive ewe obliged to print the figure of a sheep on every 
piece we make, but every fibre of it is cotton! " So it works 
The high tax is levied, but whose is the help and the harm 
cannot be foreseen. 

A worse feature than greedy log-rolling finds place in 
protective tariffs. Elbridge G. Spaulding, a distinguished 
member of the Waj's and Means during the civil war and 
just after, told the present writer, that there were but one 
or two members of that Committee besides himself who did 
not hold stock in corporations whose business was " pro- 
tected" by legislation framed in that Committee. Some of 
that stock was known to have been " put where it would do 
the most good," after a type of corruption made famous 
some time later ; and all of it (however acquired) was a 
scandal in the hands of men whose official duty it was to 
shape the taxes of a great country. 

(n) Another specimen of false assumption and fallacious 
reasoning will be cited in this connection. Protectionists 
usually deny in argument that tariff-taxes raise the price 
of home articles protected to the extent of the tax, and 
often deny that these prices are raised at all. alleging that 
home competition under the encouragement of the tariff 
shortly lowers prices to about the foreign standard; and 
members of Congress have made elaborate speeches even 
claiming as the result of protection the natural decline of 
prices owing to the better organization of industry and the 
universal use of machinery. This is the assumption and 
the claim. Fortunately, the language of pr tectionists under 
other circumstances than in argument is in complete refute* 



516 POLITICAL ECONOMY. 

tion of the c. aim, and their actions deny it more loudly than 
their words can assert it. In the " Springfield Republican " 
of Nov. 21, 1882, under the heading " Twenty TJwusand 
[die Men" occur these words : " The Joliet and other west- 
ern Bessemer steel companies have decided to shut down Dec. 
7, because, they say, of the recent fall in the prices of rails and 
of the prospect that a democratic Congress will reduce the tariff 
on steel rails." That was more than a year before the demo- 
cratic Congress was to assemble. A dim and distant fear 
that the tax on their fellow-citizens of about 100% might be 
lowered or removed, contributed to stop their production and 
throw their men out of employ. Two days later the same 
newspaper announced, that the knit-goods producers, although 
they obtained what of protection they wanted of Congress in 
the summer, yet in the late autumn they too agreed to lower 
wages and work three-fourths time. All this strikingly con- 
firms also what was said above about the need of foreign 
markets for our home-made goods. 

There is a simple test of the sincerity of protectionists 
when they affirm that tariff-taxes do not raise home prices of 
similar goods, which was never known to fail, and which 
any one can try, namely, propose to take away the taxes, 
and watch the reasons given for resistance to that proposal. 
Those reasons will imply that the taxes do raise the prices 
of the home commodities. If not, where does the protection 
3ome in? Or, what is the motive for levying such taxes? 
Or, why did the Onondaga Salt Company keep selling salt in 
Canada for years 40% less than in Syracuse itself? The 
present writer has seen the price-lists by which that company 
offered to lay down salt at the stations of the Grand Trunk 
Railway in Canada freight paid for less money than the salt 
could be bought for in Syracuse. There is also a simple 
test, which any one can try, that settles the point whether 
consumers pay the duties in the price of the wares they buy. 
Let the questioner visit any large merchant in any seaport 
town, and inquire the price of any sort of merchandise " in 



FOREIGN TRADE. 517 

bond," and the price of the same goods "duty paid." lie 
will find that the two prices differ by just the amount of the 
duty, and the merchant will be equally willing to sell him 
the goods in bond and let him pay the duty for himself, 
or to sell him the goods at the usual duty paid price. Then 
let him inquire whether American-made goods of the same 
quality can be bought cheaper than the duty paid foreign 
goods : the merchant will say no, and this for two simple 
reasons: first, because the American maker wants as largo 
j. price as he can get, and the foreigner cannot undersell 
hiin when he asks the eluty paid price of the foreign article ; 
and second, because if the American maker were willing to 
sell his goods more cheaply, no foreign goods of the same 
character could be sold except at a loss to the merchant, 
and therefore none could be imported. 

(o) Let us now look for one moment at a striking confu- 
sion of thought and terms, and a coincident fallacy in logic, 
which one meets with constantly in protectionist argumenta- 
tion. It is the confusion between the name and the real 
nature of that thing called " protection." "Let's look into 
the natur on't," said the illiterate though longheaded old 
larmer while arguing to the point with his college-bred sons. 
Protection of person and property and reputation under a 
lawful government is a matter so justly dear to every right- 
minded citizen, that that good word has been taken as a 
designation of something entirely different and even diamet- 
rically opposite. The word is good, but it does not describe 
the thing at all. Governmental protection in the only true 
sense of that term is something accorded with a firm hand 
and an impartial eye to all citizens without distinction, while 
the same phrase in its bastard sense means something abstract- 
ed from the masses of the citizens to be then clandestinely 
and indirectly conferred upon a favored few. We have seen 
abundantly already what " protection " in the false sense really 
18, as complicated and comprehensive taxes, and it is a piece <>f 
pure and plausible deceit to apply a word so suffused with 



518 POLITICAL ECONOMY. 

wholesome associations to a thing so penetrated with loath- 
some selfishness. Government, which is nothing but a com- 
mittee of citizens to attend impartially to certain great needs 
of the whole, is thereby prostituted to ihe end of the possible 
enrichment of the few at the cost of the certain impoverish- 
ment of the most. 

This explains a peculiar and long-noticed fact, namely, 
that protectionist talkers and writers rarely, or never, use 
radical analysis. They rarely, or never, begin at the begin- 
ning, take simple cases and follow them on, try to show why 
and how high taxes on certain things promote the public 
prosperity, and thus connect cause with effect and premise 
with conclusion. On the contrary, they talk endlessly about 
; ' Protection," ascribe to it marvellous efficacy, often refer to 
it as if it were the leading factor in the development of indus- 
try, without ever once taking it to pieces before our eyes and 
showing us that it is adapted in its very nature to bring about 
the results ascribed to it. The truth is, an honest analysis 
is fatal to it ; and so, recourse is had to smooth words and 
deceptive phrases and ornamental epithets non-suggestive 
even of the real nature of the thing. Here, too, Shakspeare 
hits it to the life, — 

" Ornament is but the guiled shore 
To a most dangerous sea." 

" What damned error but some sober brow 
Will bless it and approve it with a text, 
Hiding the grossness with fair ornament." 

Henry Carey Baird in a lecture at Brooklyn in the spring 
of 1883, and in various writings representative of the views 
of a circle of Philadelphians, is fully open to the criticism 
implied under this head. He also practised a cognate device 
tolerably well calculated to mislead the unwary, namely, rep- 
resenting the doctrine of free trade as an inference or out- 
growth of the doubtful dosfmas of Ricardo on Rent and 
Mai thus on Population, just as if that must stand or fall 
with these. This is a queer confusion of matters no way 



FOREIGN TRADE. 519 

vitally related to each other. The inalienable light of every 
citizen to sell and buy freely anywhere and everywhere, 
subject only to the prevenient restraint of morals and health 
and revenue, is in no way dependent on what Ricardo thought 
about rent or what Mai thus thought about population or 
what Carey thought about association, or on what any eco- 
nomical school postulate on any point within this Science. 
That inherent right does not borrow leave to be, nor hang as 
a pendant on any set of dogmas or doctrines, because it ante- 
dates them all, underlies them all, and will survive them all 
except as it is intertwined with other truths as impregnable 
as itself. One mental twist finds easily its fellow, as woollen 
fibres interlock in felting, and so Baird advertised himself as 
an "Industrial Publisher" on the principle of lucus a non 
lucendo, since the chief aim of all his writings and publica- 
tions was to stop by force of law some natural and profitable 
industries. The chief logical fallacy employed by this whole 
class of writers was the post hoc ergo propter hoc. Because 
it is hard work to destroy the commerce of a great people by 
legal restraints however multiplied, and some prosperity 
pushed itself into prominence in spite of all, behold in such 
prosperity the effects of our beautiful legislation ! 

{p) Lastly along this line let us look at the monstrous 
incongruity between the free bounties of Nature bestowed on 
a nation and the effects of restrictive legislation upon the 
actual prices of these very bounties when they come into the 
home market. Protection thwarts and virtually destroys 
those gifts of God to any people which are most peculiar and 
abundant. It therefore flings its fist into the face of Provi- 
dence, and robs the people of their natural birthright. "We 
will take the examples from our own country and at the 
present time. First, in respect of Copper, the purest and 
most abundant deposits of that important metal in the world 
are found in the upper peninsula of Michigan. Copper, 
aceordingby, should naturally be cheaper and better in this 
country than in any other country in the world. The situation 



520 POLITICAL ECONOMY. 

of the mines is central on the Great Lakes and almost in con- 
tact with the two greatest rivers of the Continent, so that the 
diffusion of the product over the country is providentially 
easy and cheap. According to the census of 1880, the copper 
mines of this country put out in that year 50,650,000 pounds, 
of which the Superior region mined 45,800,000 pounds, or 
just 90% ; the bounty of God has not been slack in bestow- 
ing this particular necessary of life upon the United States ; 
the fact remains, notwithstanding, that ingots of copper cost 
more to the citizens of the United States than to the subjects of 
the " effete monarchies " of Europe, many of which have not 
a deposit of this ore within their borders ; the tax in our 
tariff of three or four cents a pound on foreign copper, put 
on on purpose to raise the price of our own product to our 
own citizens, lifts the price here above the European level ; 
the Lake Superior copper interest sold 10,000,000 pounds of 
copper to go to Europe in the spring of 1883 at 16 cents per 
lb., while it charged every American wholesale buyer 17^ 
cents ; and at the same time people wondered why Ships 
could not be built in this country as cheaply as on the Clyde ' 
There are vast deposits of white sand in western Massa- 
chusetts, said to be the best in the world, perfectly adapted 
to glass-making, whence it is carried by rail to distant parts 
a3 well as manufactured on the spot, and one would think 
that window-glass and other glass products should be at least 
as cheap in the United States as in those countries (like 
Great Britain) in which there are no such deposits of sand. 
As a matter of fact, however, glass products of every grade 
cost more in this country, 1863-83, than in any other country, 
in Christendom. Heavy duties on foreign glass, put into the 
tariff at the instance of the domestic manufacturers in older 
to enrich themselves at the cost of their countrymen, more 
than neutralized the free gift of God in the widespread sand- 
beds, and turned that intended blessing into a positive curse. 
If there had not been a bushel of sand in the soil, the pur- 
chasers of glass would have been better off in that intf rval, 



FOREIGN TRADE. 521 

If every pane and vessel of glass had been bought from 
abroad with the products of domestic toil, and had paid 
besides a round revenue tax at the custom-houses, the people 
would have gotten them cheaper and better than they did. 
There was an extra and onerous tax on light ; and the broth- 
er by cup of cold water, on which the special divine blessing 
rests, was made by law more difficult to the Lord's poor. 

Twice within two decades separate deposits of borax 
have been discovered on the Pacific slopes, and each time 
proposals were made by the Committee of Ways and Means 
to put a special tax on foreign borax in order to " protect " 
the domestic article, that is to say, to force the American 
people to pay more than before for their borax because they 
had found a good store of it upon their own soil. The pro- 
duction of pig iron in this country for the year 1882, reached 
the enormous quantity of 5,178,000 tons, according to the 
report of the American Iron and Steel Association, and one- 
half of this quantity was produced in the State of Pennsyl- 
vania alone. Iron is the mother-metal, and is the most 
absolute of the necessaries of life ; the deposits of iron ore 
is this country, and the deposits of coal in close proximity 
with it with which to reduce it, taken together, are the most 
remarkable and abundant in the world ; iron, in all its forms 
and modilicatious, ought to be cheaper in the United States 
than in any other nation in Christendom ; Providence so 
designed it to be ; but it is probable that a ton of pig iron 
costs the American citizen, who is compelled to buy it of his 
fellow American citizen, more in gold than a ton of the same 
costs any buyer in Europe, and it is certain that iron, in its 
more advanced forms and modifications, is more expensive 
in the United States than in any market in Europe, or Asia, 
or Africa. 

The test of any truth in the economic world is its harmony 
with other known truths, and the test of falsity also is its 
contradiction to such truths. Protection accordingly con- 
tiadiots such truths at practically innumerable points, but 



522 POLITICAL ECONOMY. 

enough of these have now been cited, and we pass then 
briefly to the last branch of the subject. 

4. The Fruitage of Protection is just what might have 
been expected from the nature of the system. As it is a 
bad theory, so it works badly in practice of course. Men do 
not gather grapes of thorns or figs of thistles. In reference 
to its working in Great Britain, we quote further from Glad- 
stone in 1856 : " It is not easy to calculate the amount of the 
fine and penalty we paid for long adherence to folly, but if it 
could be exactly reckoned and fully exposed to the eyes of other 
nations, it might supply them with a timely warning against 
imitating our former errors, and with the best encouragement 
to the adoption, before they become entangled in the creation 
of artificial interests, of our recent and better example." In 
reference to its working in the United States, with which the 
reader is more concerned and more familiar, we will append 
specimens in a few particulars. 

(1) The condition of ship-building and shipping gener- 
ally, and especially of shipping employed in the foreign 
trade, at the close of this year of grace 1882, is the best 
commentary on the effects of Protection in this country. It 
is the best, because ship-building and shipping have been 
perfectly protected for more than 90 years, the perfection 
of protection being the absolute prohibition of competitors ; 
and because our people are peculiarly a maritime people, 
having enormous natural advantages in that direction, and 
having begun in the "Blessing of the Bay " built in 1631 a. 
a career of great enterprise and success on the ocean. In 
the original tariff of 1789, all foreign-built ships were ex- 
cluded from the registry under the American flag, and to 
the shame of that flag this absurd and fatal prohibition is 
still continued; and in the bill of 1792, all foreign-owned 
ships were excluded from the American coasting trade, 
which only less disgraceful law is also still in force. Both 
laws were designed to give, and did give, extraordinary 
privileges to American ship-builders and shippers, including 



FOREIGN TRADE. 528 

the complete monopoly of the River-, Lake-, and Coast-trade^ 
the sole market for ships employed in the foreign trade, and 
other advantages under the home registration. Neverthe- 
less, for the last third of the period named, shipping inter- 
ests of all kinds have declined more and more ; other causes 
have contributed to this decline in a minor way, but no 
adequate explanation of it can be found, though sought foi 
far and near, except in the navigation laws and in the tariff- 
taxes, increasing the costs of building and working ships 
and at the same time curtailing the markets for domestic 
goods. In 18G1 there was an excess of American over 
foreign tonnage entered at ports of the United States of 
2,80G,3G3 tons ; while in 1871 there was an excess of for- 
eign over American tonnage at the same ports of 2,520,704 
tons. Of the whole exports and imports of Christendom in 
1870, Great Britain had almost precisely one-third, and had 
increased her amount 91% in ten years, but the United 
States had increased her amount in the same time but 10%. 
The bulk of our exports and imports is very large, but very 
little of it is now carried upon American bottoms. In 1826, 
when the volume of foreign trade was 0102,000,000, 92% of 
it was carried in American vessels ; after fifty years of pro- 
tection to ship-building, when the trade had increased to 
Si, 170,000, 000 in 1877, only 27% was borne on our own 
bottoms ; and in 1882, when the bulk had risen to over 
$1,500,000,000, less than 16% of it was carried under the 
American flag. Of about 560 ocean steamers plying the 
Atlantic in that year between the United States and Europe, 
only 4 at most wore the Stars and Stripes. Monopoly may 
reign in inland waters and along shallow coasts, but the 
deep sea is too broad and too big for any thing but Freedom. 
(2) The increasing importations of foreign manufactured 
goods relatively to the exportations of home manufactures, 
and the consequent loss of the home market in large part as 
well as the almost total loss of the foreign market for domes- 
tic made goods, are a second result of this false system of 



524 POLITICAL ECONOMY. 

Protection. The figures on this point are startling. The 
three great textile industries and iron and steel, which are in 
general the most highly protected industries in the country, 
in behalf of which the claim has been vociferated that the 
home market must be preserved for them by means of pro- 
tective tariff taxes, show an astonishing surrender to foreign 
competition for the year 1882. Five years before, in 1877, 
the imports of foreign manufactures of these stood as 
follows : — 

Silk goods .... $21,830,0001 Woollen goods. . . $25,000,000 
Cotton goods . . . 18,923,000 1 Iron and steel . . . 9,570,000 

After five years more of legally ' ' controlling the home 
market in the interest of home industry," in 1882, the 
account stood as follows : — 

Silk goods .... $41,400,000 1 Woollen goods . . $42,000,000 
Cotton goods . . . 40,000,000 | Iron and steel . . . 50,000,000 

To show that this surrender of the home market to foreign- 
ers in spite of the lofty barriers to keep them out is annual 
and steady as well as quinquennial as above, it is only need- 
ful to compare 1881 with 1882. The increase of the impor- 
tations of the latter year over the former was in 

Silk goods ...... 21 % I Woollen goods 34 % 

Cotton goods 25 % I Iron and steel 7 % 

On the other hand, the exports of native manufactures 
along these four lines of protected goods were, in 1882, almost 
nothing in silks and woollens, and in cottons but $13,100,000 
(a very trifle more than in 1860), and in iron and steel 
amounted to $15,700,000, or less than one-third of the im- 
p >rts of the same year. 

As illustrating the same downward tendency of our " pro- 
tected ' ' manufactures under a system boasted of as calcu- 
lated to make them paramount, glassware furnishes some 
interesting figures. The imports of glassware for 1882 were 
$7,443,211, and the exports $713,792, or less than 10%. 
Instead of seeking for foreign fields in which to sell glass, it 



FOREIGN TRADE. 



525 



would seem to be the first proper business of American man- 
ufacturers to try to see how they can occupy at least one-half 
of the domestic market now covered by the foreigners. With 
all their advantages of the best native sand in abundance, of 
freely imported skilled laborers from Belgium and elsewhere, 
and of high tariff taxes to keep out the foreign products and 
thus raise the price of their own, foreigners sold to Ameri- 
cans in 1882 more than 10 times the glass Americans sold 
them. In 1832, to turn the picture, a Birmingham family by 
the name of Chance, unprotected by any duties such as the 
American manufacturer deems so indispensable to his success, 
being obliged to import all their sand from across the Chan- 
nel, and importing at first all their laborers from France and 
Belgium, established a self-supporting and prosperous indus- 
try, in which the laborers (now native) not only receive good 
wages but are cared for also in all their social and moral 
well-being. 

The census of 1880 gives the total number of persons em- 
ployed in the great subdivisions of industry in the United 
States as follows : — 



Professional and 

sonal services . 

Agriculture . . 



per- 



4,074,238 
7,670,493 



Trade and transporta- 
tion 1,810,250 

Manufactures, mechan- 
ical and mining . . 3,837,112 

The following table compiled from the censuses of the last 
four decades will be found to yield food for thought in the 
light of the present paragraphs. It relates solely to manu- 
factured goods at the four successive periods. 





1850. 


1860. 


1870. 


1880. 


Value of Products . . . 


$1,019,109,616 


$1,885,861,676 


$4,232,325,4 42 


$5,369,579,191 


Value of Materials . . . 


555,17 1,820 


1,031,605,092 


2,488,427,242 


3,895, 


Wages paid out .... 


236,759,464 


378,878,966 


775,584,343 


947,953,795 


Materials to Products, %. 


54 


54 


58 


63 


Wages to Products, % 


22 


21 


18 


17 


Average Wages earned . 


8-47 


$2S9 


$377 


$346 


d to Products, % . 


52 


53 


50 


50 


>.'<>. of Establishments . 


123,029 


140,4:;:; 


852,148 


268,863 


Average Hands each . . 


7.79 


9.34 


8.16 


1U.79 



526 POLITICAL ECONOMY. 

Our manufactures were put down in the census of 1880 as 
in value $5,369,579,191. But this sum contains $1,670,000,- 
000 that does not strictly belong to manufactures, such as 
flouring, lumbering, blacksmithing, sugar refining, coffee 
roasting, slaughtering, and a few others. This sum being 
taken out, there is left in round numbers but $3,700,000,000. 
This .is not a great amount for 50,000,000 of people, and for 
a land with such natural advantages for manufacturing as our 
own. And the significant and very serious feature of the 
situation is, that nearly 26% of this real manufacturing 
industry of the country is in metal goods, and 13% of it 
in woollens, both of which were shown above as having already 
surrendered large parts of the "home market" to foreign 
competitors in these very things. More than 23% of all the 
laborers in real manufactures were in metals, and more than 
13% of all were in woollens, that is, nearly 37% in these two 
industries alone, both of which are highly " protected," and 
both of which are weak even in their own home market. 

(3) A third and chief fruit of Protection in the United 
States, 1862-1884, was a higher range of prices on all the ne- 
cessaries of life except food, and a poorer quality in all manu- 
factured goods, than prevailed anywhere else in Christendom. 
For example, a cotton umbrella, a suit of clothes of any 
grade for either sex, common crocke^, a kit of tools, a 
brass kettle, steel rails, nails and hammers, a silk hat, hosiery 
and knit goods, writing papers and pens, — and forty similar 
things besides, — were higher in price in this interval than in 
any other country of the civilized world. A friend of the 
writer, who has spent most of his life as a missionary among 
the Zulus near the Cape of Good Hope, told him in 1882, 
that he could buy in Natal every form of clothing for him- 
self and every form of clothing for his wife and daughters, 
and even paper for his sermons and Bible translations, cheaper 
and better than he could buy them then in his native Massa- 
chusetts. 

Three or four easy and conclusive proofs of the main prop 



FOREIGN TRADE. 527 

osilior. under this head are open to us. First, it was the solo 
design and end of these protective duties to lift the level of 
the prices of home-raauufactured goods above the level that 
prevailed in other countries for corresponding goods ; that is 
the whole theory and purpose of a protective tariff ; the men 
who got these taxes put on the foreign goods knew what they 
were about and why they were about it ; and it is a safe step 
to take to conclude that what such men shrewdly design is 
actually accomplished by their device. Second, it was 
avowed over aud over again in the debates in Congress, 
that these goods could not be made and vended here at the 
current foreign prices for them ; if the duties were taken off, 
domestic prices would fall at once to the foreign level ; and 
this is certainly good proof that the domestic level was 
higher. Third, the already demonstrated increasing control 
of our home markets by foreign manufactures proves the 
name thing in another wa}- ; these manufactures have actually 
paid high duties at the custom-houses, and their price has 
necessarily been lifted to the full amount of those duties, and 
yet such was the high level of home prices for manufactures 
that these duty-paid foreign goods could still sell and under- 
sell in our markets ; and better proof of our proposition than 
this could not be desired. Fourth, the action of Congress 
itself in December, 1871, showed unmistakably the sense of 
that body, that tariff rates had made the market for certain 
protected commodities artificially high. In October of that 
year occurred the great fire at Chicago. A city had been 
burned down, and was now to be rebuilt. When Congreso 
came together a couple of months after, in pity for the sufferers 
by the Chicago fire, it voted, by large majorities in both 
Houses, that most building materials designed for use in re- 
building the ruined city should come in free of tariff taxes! 
Why was this? Of what significance was that prompt and 
praiseworthy action, unless tariff taxes actually raise the price 
of domestic goods " protected," and unless the removal of 
such duties lowers prices? Glass, brick, stcne, and every 



528 POLITICAL ECONOMY. 

form of iron and steel materials, were cheapened to Chicago 
builders, and were designed to be cheapened to them by the 
remission of certain tariff taxes ; could there be any better 
proof by any possibility that the imposition of tariff taxes 
actually raises prices, just as they are designed to be raised 
thereby by those who get the taxes put on ? 

Our proposition is also, that goods of a worse quality than 
elsewhere in Christendom were vended in this country during 
those years, and that this poor quality was a part of the 
fruitage of Protection. There were two reasons for this, 
both of which are all the time operative in a " protected ' * 
market. First, the market for protected goods no longer 
depends upon their quality for goodness, An artificial mar- 
ket has been created by putting up barriers to the coming in 
of foreign goods of that grade. Buyers cannot help them- 
selves. They must buy in the restricted home market, or go 
without. Sales are virtually forced. Good quality in the 
product is naturally and inevitably neglected by the pro- 
ducer, whenever and just so far as his sales no longer turn 
on the good quality of his products. A monopoly market 
is always filled with inferior goods, and always will be. 
Gibbon noticed this a century ago, and said : "The spirit 
of monopolists is narrow, lazy, and oppressive. Their work 
is more costly and less productive than that of independent 
artists ; and the new improvements, so eagerly grasped by 
the competition of freedom, are admitted by them with slow 
and sullen reluctance." The second reason for poor goods 
in a protected market is, that "protection" is just like 
whiskey : it uses all men that touch it alike. It raises the 
price of his materials and the cost of all his processes to 
the protected manufacturer himself, because, in order to get 
protection at all, there must be many industries protected, 
and the manufacturer has soon reason enough to cry to be 
delivered from his friends. He has purchased the right to 
pluck the community by conceding to his fellow-plunderers 
the right to pluck him. His costs of production are aug- 



FOREIGN TRADE. 529 

mented ; his foreign market is lost, because his brilliant de- 
vice will not let him get his pay back for what he would sell 
abroad ; if people are such fools as to make laws to prevent 
their own baying, of course such laws will prevent their sell- 
ing, since buying and selling are always reciprocal and syn- 
chronous ; and accordingly, the protected manufacturer must 
put into his goods less weight of material, pay less attention 
to good quality, and make every way poor goods of neces- 
sity. 

Alfred Lapoiut, one of our Peruvian consuls, warned the 
State department in 1883 of this character of some of our 
manufactures which were trying to find a South American 
market. He said : " It is my duty to indicate that great care- 
lessness prevails with our manufacturers ; for instance, I teas 
called upon to purchase in the United States a steam-pump 
and boiler, which I ordered from one of our most famed manu- 
facturers, and when it arrived, not cdone was the boiler inade- 
quate for the pump, but actually after two months' work the 
upper tube sheet split in three parts, a proof of its bad quality 
and construction. 

(4) Another fruit of Protection is the demoralization of 
commerce, the encouragement of smuggling, the losses o 
maintaining expensive vigilance by land and sea, bribery 
of custom-house officials, delays and disabilities and ill-will 
of travellers, and many more such-like things. " Gentle- 
men," said Sir Robert Peel to the House of Commons in 
1842, "what is the use of fixing our rates so high as to allow 
the smuggler to underbid us?" Secretary Hugh McCulloch 
iu his Report to Congress in 18G6 estimated the various 
frauds upon the customs revenue for that year at $92,000,- 
000. Smuggling and undervaluations and " custom-house 
oaths" and all sorts of evasions have always accompanied 
high protective taxes, and always will accompany them. Laws 
and vigilance have been and are now unable to prevent it. 
While to evade honest taxation is a high crime against So- 
ciety, it is a much less crime (to say the least of it) to evade 



530 POLITICAL ECONOMY. 

laws passed, not to get revenue, but to foster class interests 
at the expense of the masses. To do that is a ruds attempt 
to right a wrong : government is the first and main offender. 
Let it yield to all men their just rights, including the right 
of free exchange subject only to fair taxation, and it will 
hare no need to harry smugglers, and spend millions of the 
people's money in useless vigilance. To levy such high 
duties as prevent importations and encourage smugglers is 
a gross mistake ; because, while the people still pa}* artificial 
prices, the treasury loses expected revenues, honest import- 
ers suffer in their business, the public morality becomes cor- 
rupted, and even the protected interests are not ultimately 
" protected." 

So pat to all this is a recent official passage, that we quote 
from L. G. Martin, supervising special agent of the treasury 
department, in a report made November, 1882. " The un- 
dervaluation of all kinds of imported merchandise has steadily 
increased from year to year until, at the present time, its pro- 
portions are enormous. The reports from agents sent abroad 
to examine into the subject show that nearly all classes of goods 
paying ad valorem didies exported from various countries to 
the United States are undervalued, more particularly goods 
consigned by foreign manufacturers to their agents in this 
country. The practice of consigning goods has grown to such 
proportions that there has been absolutely no foreign market 
value for many articles imported, as there are no sales of such 
goods in the open market, the American merchants being com- 
pelled to purchase from the agent of the manufacturer to 
whom the goods are consigned. Investigation has shown that 
upon the advice of the agent foreign manufacturers often in- 
voice consigned goods far below the cost of production. It is 
estimated that less than 40°f of the 60°f ad valorem duty on 
silk is collected, in consequence of the undervaluation of that 
article. Velvets, plushes, laces, embroideries, edgings and like 
articles have been reported as systematically undervalued by 
the foreign manufacturers, many of whom, when spoken to on 



FOREIGN TRADE. 531 

rfte subject, openly admit that they invoice their goods to this 
country at lower rates than they do to other countries, justify- 
ing their action and reconciling their conscience upon the 
ground that they have the right on the score of humanity, 
if for no other reason, to evade what they term our "mon- 
strous American tariff," declaring that if the American mar- 
ket teas cut off from them, which is the intention of our high 
tariff, their manufactories woxdd close and their people wordd 
suffer and starve in many manufacturing centres tchence 
nearly all their manufactured goods are exported to the 
United States." 

(5) The last fruitage of Protection to be mentioned in 
this connection is, that it is hard to escape from the clutches 
of a bad system of taxation long maintained. Prescription 
pleads for its retention. Privileged classes grown up under 
the shadow of it are apt to be imbittercd by the most reason- 
able pleas for its abolition. Clear-sighted citizens seeing the 
wrong of it from a moral point of view, and the losses of it 
from an economical point of view, are apt to let their per- 
sonal feelings take a slant towards the persons concerned 
rather than towards the system, and this begets suspicious 
and ill-will and class-feelings. As the natural drift of the 
system is to build up the fortunes of a very few at the cost 
of the toil of the very many, when the latter clearly perceive 
this drift, their denunciations are often bitterly personal and 
sometimes extremely unreasonable. Society gets b} r the 
ears in trying to extricate itself from a bad slough : it seems 
to be alwaj's a part of the punishment for entering upon a 
false system that it is hard work to get out of it. The ques- 
tion at bottom is a purely scientific one, and Political Econ- 
omy is perfectly able to handle it as such; but it gets 
entangled with other and diverse social questions, and what 
is worse, gets mixed up with party politics ; so that, some- 
times, a matter which not one voter in a thousand really 
comprehends, heroines a sort of test on one side or the 
other of party allegiance. A measure which concerns all 



532 POLITICAL ECONOMY. 

the people equally often becomes a sort of shuttlecock 
knocked back and forth between the parties. An amusing 
yet disheartening illustration of this is seen in a letter of 
Senator Dawes printed just before the meeting of Congress 
in December, 1882. He had been very instrumental for 
twenty years in getting on and keeping on the abominable 
taxes of the tariff that was in vogue at that date. But in 
the elections of November the people had pronounced un- 
mistakably against those taxes and the political party which 
devised and maintained them. The Senator writes : " If the 
tariff commission presents a bill that the Republicans can sup- 
port, the first day of the session should not pass before it is 
offered as an amendment to the internal revenue bill in the 
/Senate and as an independent measure in the House, and let 
the Democrats fight it if they will." 

The fruitage of the tree of Protection becomes soon or 
late bitter enough even for the persons who planted and 
watered the tree. 

Shall we try to put into a few brief propositions the 
principal points of the present chapter? 

1 . TJie Constitution of the United States plants itself pretty 
firmly on Free Trade ground. 

2. The motives and methods and mutual benefits of foreign 
trade are in substance identical with those of domestic trade, 
as is seen in the silks of France exchanging with the cottons 
of England. 

3. TJie origin of Protection is clearly found in the now 
acknowledged falsities and follies of the Mercantile System. 

4. A tariff from its very nature alivays takes but never 
gives. 

5. TJie two kinds of tariffs Revenue and Protective are 
wholly diverse from each other in purposes, principles, inci- 
dence and results. 

6. Protective tariff-taxes are always laid at the instance 
and under the pressure of those men who wish to sell their 
wares at an artificial price. 



FOREIGN TRADE. 533 

7. TJiese artificial prices of home commodities iveigh like a 
burden on the masses of the people. 

8. If a nation will not buy of foreigners it cannot sell to 
them. 

9. Foreign markets are lost to exports in proportion as 
domestic markets are refused to imports. 

10. No tariff-tax was ever laid on foreign uiborers coming 
in to compete for wages with domestic laborers. 

1 1 . Protective tariff-taxes lessen the wages of laborers, in* 
crease the costs of production to manufacturers, and bear 
doubly on the farmers, compelling them to pay more than is 
just for what they buy and to sell for less than is just what 
they sell. 

12. Protection is as full of falsities as nuts are full of 
meats. 

13. Tlie fruitage of a bad system corresponds in badness 
with the system itself. 

14. Free Trade does not compel any one to trade with for- 
eigners but only allows him to do it if he finds it profitable. 

15. Free Trade secures to each nation the good things of 
all, arms each with the improvements in all, maximizes to 
every toiler the rewards of his work, and tends to unite all 
nations in bonds of peace and good-will. 



534 POLITICAL ECONOMY. 



CHAPTER XIII. 

UNITED STATES TARIFFS. 

So loDg as these Colonies were under the British dominion 
tLey were bound by the rigid fetters of the Mercantile Sys- 
tem. Up to the date of American Independence, Virginia 
and Massachusetts must buy most they wished to buy in 
English markets and carry most they had to sell to English 
ports ; the Navigation Acts, though much evaded in the col- 
onies, were strictly applied to them, and the Board of Trade 
were watchful for their enforcement ; a Boston ship, for ex- 
ample, could not sail directly to China for teas, but the teas 
mubt first be brought to England in British ships, pay a duty 
there, and then be re-exported to the colonies ; and it was 
these galling restrictions on their trade, that, more than any 
thing else, brought on the Revolutionary war. Says Ban-' 
croft: " American Independence, like the great rivers of the 
country, had many sources, but the head spring which colored 
all the stream was the Navigation Act." Any one who will 
compare the Sugar Act, the Stamp Act, the Tea Acts, and 
the Act creating revenue commissioners, with the other acts 
and grievances complained of by the Stamp Act Congress of 
1765 and the Continental Congress of 1774, will see plainly 
that the American Revolution was waged mainly in the inter- 
ests of a free trade. Of the thirteen solemn Resolutions of 
the first-named Congress, four related exclusively to these 
interferences with their trade, the last of which was couched 
in these terms : " That the restrictions imposed by several late 
acts of Parliament on the trade of these colonies will render 
them unable to purchase the manufactures of Great Britain." 



UNITED STATES TARIFFS. 535 

Accordingly, so soon as our fathers saw clearly that they 
must set up for themselves, one of their first great national 
acts was, antedating the Declaration of Independence by 
three months, to throw open the commerce of the thirteen 
Colonies to all the world not subject to the king of Great 
Britain. The day was April G, 177G. One grand vote of 
the Continental Congress thus swept away forever the old 
and hated colonial system. The vote abolished British cus- 
tom-houses here, instituted none in their stead, and invited 
the flag of every other nation to our harbors. Bancroft 
(viii. 323) says : " Absolute free trade took the place of hoary 
restrictions ; the products of the world could be imported from 
any place in any friendly bottom, and the products of Amoi- 
can industry in like manner exported without a tax." Thus 
things went on throughout the War, and essentially thus 
till the establishment of our present form of government in 
1789 ; although under the Confederation it was one of the 
reserved rights of the States, each for itself, to lay such 
duties on exports and imports as it chose, and this powei 
was sometimes used contrary to the general good. No ill 
effects followed this general liberty to buy and sell with for- 
eigners, any more than ill effects follow at present the liberty 
of all the people of our 38 States to buy and sell freely with 
each other, because every thing that is bought has to be paid 
for and the pay bus to be taken for every thing that is sold. 

While the war was still going on, in 1778, a treaty of com- 
merce was signed between France and the United States. 
The principles of this treaty were excellent. It speaks of 
"founding the advantage of commerce solely upon reciprocal 
utility and the just rules of free intercourse ;" it agrees to 
avoid " all those burdensome prejudices which are usually 
sources of debate, embarrassment, and discontent; " and it 
professes as the "basis of their agreement the most perfect 
equality and reciprocity." It is pleasant to see in these lib- 
eral terms the then pervading influence of the Physiocrats. 
The treaty of Peace with England in 1783 was not accom 



536 POLITICAL ECONOMY. 

panied by any treaty of Commerce, though our envo3 r s tried 
hard to get one. The English expected great losses from 
their political separation from the colonies, hut they found 
they could easily control the trade with them, partly because 
they had previously possessed it, and partly because the Con- 
federation was not gifted by the people with power " to 
regulate commerce." As always in war, the capital of this 
country had been largely destroyed, and consequently the 
ability to produce for foreign markets much curtailed, and 
England easily took most there was in exchange for her 
ready goods ; the commercial helplessness of the confedera- 
tion to force England to a position of reciprocity not only 
led the latter to refuse a commercial treaty, but also led her 
to exclude by an Order in Council American ships from 
her West India possessions, between which and this country 
there had grown up, partly through some relaxations in the 
Act of Navigation and partly in violations of it, a large and 
profitable trade ; and it was to consult upon a remedy for 
this bad state of things, that a meeting of the leading States 
was held at Annapolis in 1786. Hamilton and Madison 
were there from New York and Virginia respectively. They 
persuaded the other delegates to decline entering upon the 
subject of commerce at that time, inasmuch as it was con- 
nected with other defects of the Confederation, to which 
their present powers did not reach ; and they wisely drew up 
an Address to the Congress of the Confederation to call 
another meeting of all the States, whose delegates should 
have ample powers to go over the whole ground and to 
devise a system adequate to the exigencies of the country. 
Thus was summoned the Federal Convention of 1787, which 
framed the Constitution under which we still live, which 
gives to the national Congress the needful power " to regu- 
late commerce" and " to lay and collect taxes." 

1. In pursuance of these powers the first Congress framed 
in 1789 a famous act of commerce and taxes, which we shall 
call the Hamilton Tariff. We name it so, because Hamilton 



UNITED STAT J S TARIFF*. 537 

was then Secretary of the Treasury, because he is kuown to 
have exerted much influence over the members who framed 
tin' bill, because his own principles as an indirect protec- 
tionist were actually carried out in this tariff, and because 
he made in 1791 an elaborate Report to Congress covering 
the whole subject. AVe include in this designation, as in 
subsequent similar designations, not only the original act 
but. also modifications and additions passed in following 
years in harmony with the ground-thought of the original 
act. 

Because the new Constitution prescribed that "all bills 
for raising revenue shall originate in the House of Represen- 
tatives," the main debates on the new tariff were in that 
branch of the Legislature ; and very interesting debates they 
were, as Benton has abridged them for the use of posterit}'. 
Nothing could be simpler or sounder than the basis of the 
new tariff as proposed by Madison, the acknowledged leader 
in the debates, namely, the revenue system of 1783, as 
adopted by the old Congress and ratilied in succession by all 
of the States, excepting New York. That was, small spe- 
cific duties on wines, spirits, teas, coffee, cocoa, molasses, 
sugars and pepper, and upon all other goods imported 5% 
ad valorem. That was the basis ; and in the earlier part of 
the discussion no other end than revenue was mentioned in 
connection with the taxes. Madison said : "I own myself the 
friend of a very free system of commerce: if industry and 
labor are left to take their own course they will generally be 
directed to those objects which are most ptroductive, and thai in 
a manner more certain and direct than the wisdom of the 
mos', enlightened legislature could point out ; nor do I believe 
that the national interest is more promoted by such legislative 
directions than the interests of the individuals comer 
It is significant of after times that the first word in this 
debate respecting any other end than revenue through the 
taxes came from Pennsylvania. Hartley said: "J cm 
therefore sorry that gentlemen seem to fix (heir mind to so 



538 POLITICAL ECONOMY. 

early a period as 1783 ; for we very well know our circum* 
stances are much changed since that time: ive had then but 
few manufactures among us, and the vast quantities of goods 
that flowed in upon us from Europe at the conclusion of the 
war rendered those few almost useless; since then we have 
beer forced by necessity, and various other causes, to increase 
oar domestic manufactures to such a degree as to be able to 
furnish some in sufficient quantity to answer the consumption 
of the whole Union, while others are daily growing into 
importance. Our stock of materials is, in many instances, 
equal to the greatest demand, and our artisans sufficient to 
work them up even for exportation. In these cases, I take it 
to be the policy of every enlightened nation to give their manu- 
factures that degree of encouragement necessary to perfect 
them, ivithout oppressing other parts of the community." 

Hartley's cheerful view of the state of manufactures at 
that time, less than ten years after the close of an exhaust- 
ing war, without a particle of ' ' encouragement ' ' other than 
the natural gains of trade is confirmed by Hamilton's 
Report on manufactures, in which he enumerates seventeen 
branches as then thriving so as to fairly supply the home 
market and settle into regular trades. These were skins 
and leather, flax and hemp, iron and steel, brick and pot- 
tery, starch, brass and copper, tinware, carriages, painters' 
colors, refined sugars, oils, soaps, candles, hats, gunpowder, 
chocolate, snuff and chewing tobacco. He thought some of 
these should be ' ' encouraged " by a system of direct boun- 
ties from the treasury, which he much preferred to laying 
duties of a protective or prohibitive character. He inter- 
preted the taxing clause of the Con c titution as it is interpret- 
ed in the opening paragraph of our preceding chapter; but 
money being once raised by taxes designed for that purpose, 
he held a loose construction of that part of the clause relat- 
ing to its expenditure. Historian Schouler (I. 186) well 
says: '•'■Once more laying hold of the " general welfare" 
clause of the Constitution , Hamilton here argued, under color 



UNITED STATES TARIFFS. 539 

of giving bounties to manufactures, as though Conjress might 
take under its own management every thing which that body 
should pronounce to be for the general Welfare, provided only 
it xoas susceptible of the application of money. Though he 
limited this central discretion to the application of money , and 
stated some restrictions rather vaguely, the insidious tenor of 
his report was to show that the Federal power of raising 
money was plenary and indefinitely great." Hamilton, in 
short, with all his transcendent merits as a statesman, was 
a thorough believer in a paternal government instituted and 
administered by what he would call the "better class;" 
the drift of this Report, accordingly, excited quick opposi- 
tion both in the Cabinet and in Congress, and the scheme, to 
its author's mortification, went over for the time without 
action; this Report of 1791, nevertheless, gathered friends 
to Hamilton at the time among influential citizens, and long 
afterwards furnished (not very logically) arguments and 
authority to two great political parties. Hartley and Ham- 
ilton agree as to the thriving state of manufactures at the 
opening of the new government. 

Massachusetts was not a whit behind Pennsylvania in ask- 
ing for discriminations in her favor. New England rum 
was made out of molasses, and Jamaica rum was its com- 
petitor in public favor ; distillers in the neighborhood of 
Boston and Salem wanted therefore a high duty on Jamaica 
rum, but a low one on the imported molasses used in the 
home manufacture. Madison and others were willing to dis- 
courage rum-making and rum-selling in the interest of tem- 
perance, and proposed a duty of eight cents a gallon on 
molasses, which called out indignant bursts from Ames and 
Goodhue. The latter said : " Molasses is a raw material, 
essentially requisite for the well-being of a very extensive and 
valuable manufacture. It ought likewise to be considered a 
necessary of life. In the Eastern States it enters into the 
diet of the poorer classes of people, who are, from the c cay 
of trade and other adventitious circumstances, totally imtibU 



540 POLITICAL ECONOMY. 

to bear such a weight as a tax of eight cents would be upon 
them. I cannot consent to allow more than two cents. 
Massachusetts imports from 30,000 to 40,000 hogsheads 
annually, more than all the other States together. Fifteen 
cents, the sum laid on Jamaica spirits, is about one-third part 
of its value : now eight cents on molasses is considerably 
more: the former is an article of luxury, therefore that duty 
may not be improper; but the latter cannot be said to par- 
take of that quality in the substance, and when manufactured 
into rum is no more a luxury than Jamaica spirits." Ulti- 
mately the Massachusetts members and the other members 
inclined to protection partially carried their points, more 
however through amendments made in the Senate, which 
then sat with closed doors, and which consequently was 
more open to the influence of interested petitions which soon 
began to pour in, than through open discussion in the House ; 
the tax on molasses was fixed at two and a half cents, and 
">n Jamaica spirits ten cents, a gallon ; on nails, a protective 
duty of one cent a pound was laid, because Pennsylvania 
wanted it, and because the making of them was then a house- 
hold industry in New England, engaging farmers' families 
through the long winter evenings ; and an accepted Senate 
amendment classed hemp and cotton together as two products 
of the soil well worth fostering, hemp at three-fifths of a cent 
and cotton at three cents a pound, yet hemp constantly pro- 
tected to this day has never risen to the rank of a staple. 

The last two duties seemed to be a concession to agri- 
culture, but the members interested in that industry soon 
perceived that they were being worsted on the whole by 
the manufacturers. Says Historian Eliot (p. 282) : " Tlie 
interests of the Northern industry, its shipping, its commerce, 
and its manufactures, called for a very different policy on the 
part of the Government from that demanded by the Southern 
agriculture." When Lawrence of New York and a region 
much interested in salt works then as well as now proposed 
a tax of six cents a bushel on imported salt, it brought the 



UNITED STATES TARIFFS. 541 

fanners aud frontiersmen at ouee to their feet. Burke o' 
South Carolina said: " I need not observe to the Committer 
that this article is a necessary of life, nor that blade cattle, 
sheep, and horses do not thrice without it; on these considcrc- 
tions alone I should oj}j)ose it; but I know likewise that it is 
a tax particularly odious to the inhabitants of South Carolina 
■ind Georgia, to tchom the price is already oppressively great. 
The back j^ctrts of that State are obliged to haul all they con- 
sume two, three, or four hundred miles in wagons, for which 
they pay about seven shillings sterling. Add to this the first 
cost, which is about one shilling, though sometimes more, aud 
you will find the burden sustained by those ivho live remote 
from the seashore sufficiently unequal." Nevertheless the salt 
protectionists had it then their own waj 7 , as so many times 
since. "When it came to steel, the antagonism between a 
protected manufacture and an independent agriculture be- 
came very evident: said Clymer of Pennsylvania: " TJie 
manufacture of steel in America, is rather in its infancy ; but 
as all the materials necessary to make it are the produce of 
almost every State in the Union, and as the manufacture is 
already established, and attended zvith considerable suceess, I 
deem it prudent to emancipate our country from the manacles 
in which she is held by foreign manufactures. I hope, there- 
fore, gentlemen will be disposed under these considerations to 
extend a degree of patronage to a manufacture, which a mo- 
ment's reflection will convince them is highly deserving protec- 
tion." Tucker of South Carolina rejoined : " I consider the 
smallest tax on this article to be a burden on agriculture, 
which ought to be considered an interest most deserving pro- 
tection and encouragement ; on this is our principal reliance, 
on it also our safety and happiness depend. When I consider 
the state of it in that part of the country which I represent on 
this floor, and in some other x>o,rts of the Union, I am really 
at a loss to imagine with what propriety any gentleman can 
propose a measure big with oppression, and tending to bura\ n 
particular States. I ccdl upon gentlemen to exercise liberalify 



542 POLITICAL ECONOMY. 

and moderation in ivhat they propose, tf they #>&A to gice 
satisfaction and do justice to their constituents." Yet, as 
Pennsylvania insisted on it, the duty on unwrought steel 
was fixed at 50 cents per cwt. 

In the course of the same debate, Fisher Ames of Massa- 
chusetts, who had made the strongest plea against the 
molasses tax, and who yet was the strongest stickler there 
for the protectionist view, went to the root of the whole 
matter of the antagonism between agriculture and artificial 
manufactures in a few frank and radical words. He said : 
" From the different situation of the manufacturers in Europe 
and America, encouragement is necessary. In Europe the 
artisan is driven to labor for his bread. Stern necessity, 
ivith her iron rod, compels his exertion. In America, invita- 
tion and encouragement are needed. Without them the infant 
manufacture droops, and those who might be employed in it 
seeJc with success a competency from our cheap and fertile 
soil." These few short sentences let the protectionist cat 
right out of her bag. Considered as simplicity of admission, 
they are very amusing ; considered as a condensation of the 
protectionist argument, they are very admirable ; but consid- 
ered as to the reality of wrong and loss which have actually 
followed this antagonism, they are very sad. The substance 
of the plea is, that our people were not poor enough, and 
particularly the agricultural classes were not poor enough, 
for the best interests of the petted manufactures. He 
seems rather to envy the situation of the manufacturers of 
Europe, where " the artisan is driven to labor for his bread," 
and where '' stern necessity with her iron rod compels his 
exertion ; " and to deem the situation in America unfortu- 
nate, where " without invitation and encouragement" (that 
is to say, without burdensome taxes imposed on the people 
to support it) " the infant manufacture droops, and those 
who might be employed in it seek with success a competency 
from our cheap and fertile soil." Here is a downright 
admission that high wages in this country are a result of the 



UNITED STATES TARIFFS. 643 

endk-ss opportunities of agriculture : they do indeed spring 
from the " competency " which laborers are able to "seek 
with success" "from our cheap and fertile soil." What is 
then to be done, what is here in effect advised to be done: 
Why the only thing to be done is to depress agriculture with 
onerous taxes, to lessen the profits of fanning, so that 
laborers will no longer "seek" the land! Then bring in 
from " Europe " " the artisan " " who is driven to labor for 
his bread." Not the cheapness of foreign labor which they 
have always been glad to get for themselves at the cheapest 
possible rate, but the larger returns which their men could 
get by the same effort "from our cheap and fertile soil," 
have been the "competition" which our manufacturing 
employers have had to contend against. Protection assumed 
at the outset, and has maintained to this da} 7 , an attitude of 
unceasing hostility to the tillers of the soil. Protectionist 
manufacturers, who arc a mere fraction of the population, 
have cajoled the farmers, who are one-half of the popula- 
tion, to consent to pay for their supplies prices artificially 
enhanced by law, and to sell their produce at prices artifi- 
cially depressed by law, in order to enable the said manu- 
facturers to carry on branches of industry, which, as they 
say, would otherwise be wholly unprofitable and impossible- 

As finally adjusted after long discussions, and after die 
appointment of conference committees between the Houses, 
the Hamilton Taritf laid specific duties, moderate and yet 
discriminating, upon thirty articles, mostly manufactured. 
but including coal at the instance of Virginia at two cents a 
bushel; and ad valorem duties ranging from 5 to 10% on 
all other articles, excepting eleven which were duly -free. 
Cottons, woollens and linens, since so highly protected, 
came in at 5%. The average duties on the whole list were 
about 8% ; in consequence of the assumption of the State 
debts by the nation, this average was raised a year later to 
about 11%; in 1792, in consequence of St. Clair's defeat 
and the increase of the army, the list of duties was -evised 



544 POLITICAL ECONOMY. 

and raised on the average to perhaps 15% ; and domestic 
difficulties ia 1797, and fears of a French war in 1800, caused 
at each of these dates additional taxes upon a few imported 
articles, cottons, woollens, linens and silks, paying at least 
Vl\°f . As the misunderstandings with England thickened, 
non-importation schemes, and at last positive embargoes, 
interrupted the play of the Hamilton Tariff. The great 
object of this tariff throughout was revenue; yet, in select- 
ing from time to time the particular subjects for increased 
taxation, an eye was evidently had to the so-called protection 
of American industry. So little regard for consistency, how- 
ever, was had by the members of Congress, so little tenacity 
as to abstract principle, that the same men, who argued for 
high duties on things their constituents were desirous to 
supply, voted steadily for low duties on things the same 
constituency would have to purchase. It is perhaps strange, 
considering that England was still fully deluded with Protec- 
tion, and notwithstanding the tenor of the causes of the war, 
that members were not more protectionist than they were. 
As has been said in another connection, they adopted the 
English navigation acts entire ; and in laying tonnage duties, 
they discriminated strongly, as follows ; six cents a ton on 
vessels American built and owned on entering port from 
abroad, thirty cents a ton on those American built but 
owned abroad, and fifty cents on all others. The protection 
in the tariff- taxes was mild, but it was enough to whet the 
appetite for more ; it was even allowed, for the Preamble 
of the Act ran as follows ; " Wliereas, it is necessary for the 
support of the Government, for the discharge of the debts of 
the United States, and the encouragement and protection 
of manufactures, that duties be laid," and so on. 

As a measure for revenue, this tariff was unexpectedly sat- 
isfactory. During the eighteen years, 1790-1808, the income 
from it quadrupled, reaching in the latter year $1G,3G3,550.58 
The increase was almost regular from year to year ; and a 
comparison of these eighteen years with any eighteen years 



UNITED STATES TARIFFS. 64fi 

of our after history when we have had decidedly protective 
taiiffs will yield all that is claimed in respect to the superi- 
ority of a low revenue tariff over protective tariffs in point 
of steadiness of income and especially in point of a steady 
increase of income. 

2. Our second tariff was passed in 181G, and we may 
designate it as the Calhoun Tariff. It was planned indeed 
by Dallas of Pennsylvania, then Secretary of the Treasury, 
who, like Hamilton, was born in the West Indies of Scotch 
paieutage ; but the most distinctive feature of the bill, and 
the one most quarrelled over, was the pronounced protection 
accorded in time of peace to cottons in the interest of the 
cotton-growing States, whose special champion on this occa- 
sion was Calhoun, which makes it proper that the tariff take 
its name from him. Two Massachusetts men, Lowell and 
Jackson, brothers-in-law, had started a modern cotton-mill 
in Waltham, near Boston, in 1813, and constructed in it with 
the help of an ingenious mechanic named Mood} 7 a power- 
loom ; and in 181G they went to Washington, and by personal 
influence with Calhoun, his colleague Lowndes, who reported 
the bill, and other members of Cougress, contributed largely 
to the introduction into this tariff of its protective features 
as towards cottons. Calhoun was under the impression that 
a domestic market for cotton, in connection with the foreign 
market, would raise the price of that staple, and he acted 
accordingby, though he fouud reason afterwards for altering 
his opinion in that regard. Lowell, the cotton city on the 
Merrimack, founded in 1821, was named from the successful 
lobbyist of 181G. The tariff of that year is interesting and 
important, became then first the country entered on the 
protective system fairly and squarely; because before that, 
revenue had been the object of the tariff-taxes and protection 
to manufactures the incident, whereas now protection became 
the object and revenue the incident; because from this time 
on there grew a strong opposition to the sj^stem on the part 
of the maritime and landed classes, local feelings somewhat 



546 POLITICAL ECONOMY. 

excited before becoming now considerably roused ; and be« 
cause, Webster and New England strenuously opposed this 
tariff, while Calhoun and South Carolina strenuously sup- 
ported it, which positions were afterwards exactly reversed. 
Dallas's plan divided importables into three classes : 1st, 
Those of which a full domestic supply could be produced ; 
2d, Those of which only a partial domestic supply could be 
afforded ; and 3d, Those produced at home very slightly, 01 
not at all. - The Secretary recommended, that on the first 
class, consisting mainly of manufactures of some of Hamil- 
ton's seventeen branches, duties should be laid heavy enough 
to secure the market to the home manufacturers, leaving it 
to domestic competition to keep down the prices. In the 
tariff as adopted these duties were fixed at 35%, except 
on cannon, small arms, and printers' type, charged 20%, 
and except on cordage, window-glass, and boots and shoes, 
charged specifically. In the second class, he placed cottons, 
woollens, metal goods, distilled spirits, and malt liquors, 
among other miscellaneous articles. On these he suggested 
an average duty of 20%, as still leaving the door open to for- 
eign competition, while affording a fair protection to the do- 
mestic manufacture ; but in favor of cottons and woollens, he 
was inclined to go further. The manufacturers of these fab- 
rics, seeing that now was their time, had sent up a statement, 
of which quite a parade was made in the House, to the effect 
that the cotton men had a capital of $40,000,000, employed 
100,000 persons, worked up 27,000,000 pounds of cotton 
yielding 81,000,000 yards of cloth, of which the value was 
$24,300,000; and the woollen men had $12,000,000 as 
capital, 50,000 workmen, consumed wool worth $7,000,000, 
wrought into cloth worth $19,000,000. These figures look 
suspicious in view of the alleged ratio of the value of the 
raw material to the finished product, but they are curious as 
showing an example of what has always been the general 
rule in this country, that it is the strong and rich industries 
which get protection and not the weak and poor ones. Under 



UNITED STATES TARIFFS. 547 

the double war duties of the last two or three years, these 
fabrics had had a protection of about 80%, and Dallas pro- 
posed that cottous should now have a duty of 33£%, with a 
proviso that all cottons should be assumed at the custom-house 
to have cost at least 25 cents to the square yard. This is the 
famous principle of the "minimum." On woollens (except 
blankets and worsteds), he suggested a duty of 28%. 

It is noteworthy, that the new tariff was not discussed in 
the House with any thing like the fulness of the former one, 
and the penetrating reader will not be at a loss for the reason 
of this. When John Randolph of Virginia moved to strike 
out from the bill the proviso for the cotton minimum, and 
argued at some length " against the propriety of promoting 
the manufacturing establishments to the extent and in the 
manner proposed by the bill, and against laying up 8,000 
tons of shipping now employed in the East India trade, and 
levying an immense tax on one portion of the community to 
put moue}' into the pockets of another," — Calhoun rejoined, 
— ** Until the debate assumed this new form, he had deter- 
mined to be silent ; participating, as he largely did, in that 
general anxiet}- which is felt, after so long and laborious a 
session, to return to the bosom of our families. It has beeu 
objected to that bill, that it will iujure our marine, and con- 
sequently impair our naval strength. How far it is fairly 
liable to this charge, he was not prepared to say. He hoped 
and believed it would not, at least to any alarming extent, 
have that effect immediately ; and he firmly believed that its 
lasting operation would be highly beneficial to our commerce. 
TLe trade to the East Indies would certainly be much affeoted ; 
but it was stated in debate that the whole of that trade cm- 
ployed but six hundred sailors. The cotton and woollen 
manufactures are not to be introduced, they are already 
introduced to a great extent; freeing us entirely from the 
hazards, and in a great measure, the sacrifices experienced 
in giving the capital of the country a new direction. The 
restrictive measures and the war, though not intended for 



£>48 POLITICAL ECONOMY. 

that purpose, have by the necessary operation o" things turned 
a large amount of capital to these new branches of industry. 
But it will no doubt be said, if they are so far established, 
and if the situation of the country is so favorable to their 
growth, where is the necessity of affording them protection ? 
It is to put them beyond the reach of contingency." Thus 
ho goes on to give plausible reasons for his insistance and 
hi 3 vote, but he does not even touch upon the real reason. 
If he had detailed his conversations with Lowell, it would 
have been far more to the point. But, as always happens 
when men really act from unavowed motives, he was sus- 
pected of having them ; and he guarded himself : "He was 
no manufacturer ; he was not from that portion of the coun- 
try supposed to be peculiarly interested. Coming, as he did, 
from the South, and having in common with his immediate 
constituents, no interest but in the cultivation of the soil, 
in selling its products high, and buying cheap the wants and 
conveniences of life, no motive could be attributed to him 
but such as were disinterested." Randolph charged, that 
the discussion showed "a strange and mysterious connec- 
tion " between this measure and the national bank bill which 
had just passed ; Calhoun ' ' wished merely to reply to the 
insinuation of a mysterious connection between this bill 
and that to establish the bank. He denied any improper 
or unfair understanding, and could challenge the House to 
support the charge." 

The opposition to the bill knew its reasons, and avowed 
them strongly. For example, Telfair of Georgia: " On the 
subject of impost I hold it a sound general rule that no other 
or higher duties should be laid than are both necessary and 
proper for the purposes of revenue. To attempt more, neces- 
sarily increases the inducements to smuggling ; and if the 
encouragement of manufactures be the object, it is, in effect, 
to plunge on the wide ocean of uncertainty, guided by facti- 
tious lights, emanating from the selfishness of those who tender 
them, and which never can be relied upon for the purposes of 



UNITED STATES TARIFFS. 549 

wise legislation. But what is the character of the measure 
before you? Instead of contemplating the protection and en- 
couragement of manufactures as secondary and collateral, it 
refers to them as the primary and essential cause of legisla- 
tion; instead of the benefits flowing to them being considered 
merely as some alleviation of burdens, made necessary by the 
wants of the government, their encouragement has, in the whole 
course of the discussion, been placed in the foreground and 
admitted to be the principal object for which so enormous a tax 
is laid upon the people of this country — a tax, the proceeds 
of which, so far as it means protection, are never to enter the 
coffers of the nation, but, by a species of magic, transferred 
from the hands of the consumer into those of the manufac- 
turer — paid by the people indeed, but not for the purposes of 
Government." As finally passed after much chaffering-, the 
bill put on both cottons and woollens a duty of 2b c f , to be 
reduced after three years to 20%, and the important proviso 
of the minimum was retained. This was a device to increase 
protection without seeming to do so. Pennsylvania was 
pleased by a duty on pig-iron of §9 a ton, on anchors and 
bar and rolled iron of $30 a ton, and on sheets and rods and 
hoops of §50 a ton. Nails were to pay three cents, and iron 
and steel wire from five to nine cents, a pound ; and raw 
steel, §20 a ton. 

Of course, this success of the manufacturers roused the 
hopes of the Louisiana sugar planters. Uobertson of that 
State said: "The State of Louisiana, Mr. Chairman, from 
its happy climate and fertile soil is competent to furnish the 
Un.'ted States with all the sugar they may require ; but that 
this may be done with certainty and within a short time, 
some encouragement is indispensable. Is any manufacture 
more important to the nation? Is there one which may be 
aided by a tax ou its foreign competition with less injustice 
to the community, or with greater advantage to the revenue? 
Gentlemen call it an agricultural product; is that sufficient 
to render it an object of prejudice? Have our manufacturer! 



550 POLITICAL ECONOMY. 

already, by their combinations, succeeded in placing their 
employment on higher ground than that of the agriculturist? 
I fear, Mr. Chairman, that an interest is springing up before 
which every other is to be prostrated ; the mere manufacturer 
is to be preferred ; whatever injury be done to the revenue, 
whatever ruin be brought on maritime industry, however much 
the agriculturist suffer, the manufacturer must and will be 
encouraged. Does the manufacturer of wool want encourage' 
ment, foreign cloth is shut out, the value of the duties given 
up, and the competition so beneficial to the consumer is de- 
stroyed; does the farmer ask to be protected in raising sheep, 
so as to furnish the raw material, the necessary duty on for- 
eign wool is denied, because it is convenient and profitable to 
the manufacturer to purchase wool as cheap as possible, 
whether it be foreign or native." Accordingly, the duty on 
brown sugar was fixed at three cents, and that on loaf sugar 
at twelve cents, a pound. On Dallas's third class, the rates 
were mostly fixed with a view to revenue only : on molasses, 
five cents a gallon ; on coffee, five cents a pound ; on salt, 
forty cents per cwt. ; on coal, five cents a bushel ; and on 
silks, stuff goods, and blankets, 15%. Two-thirds of a 
century after this date, blankets bore in the tariff 100%. 

The tariff passed in April, 1816, by a vote in the House 
of 88 to 54. "And thus was inaugurated a new policy with 
respect to the imposition of duties on imports. Duties now 
became excessive. No longer the 5%, the 7^, the 10, 12^, 
15, which formerly prevailed ; but all these doubled, with 
additions, and the introduction of minimum valuations which 
gave to a high duty the further advantage of being calculate' I 
upon a fictitious value. It was the commencement of the 
long discussion on the tariff policy which afterward divided 
and disturbed the country, and attained the height of an 
organized State resistance to a tariff of protection, and a 
conditional ordinance of secession, if it were not abandoned, 
and that by a given day " (Benton). The average of all the 
duties in this tariff at first was about 25 % ; the next year 



UNITED STATES TARIFFS. 5ol 

there was a further copying from the English Navigation 
acts, to the effect, that importations by foreign sbips into 
this country should be substantially limited to the produce 
of their respective countries ; shortly after, the reductions 
on cottons and woollens proposed in the tariff itself were 
postponed till 182G ; and in 1820, there was a general revis- 
ion of the whole tariff, on the basis however of Dallas's three 
classes, under the lead of. Baldwin of Pennsylvania, chair- 
man of the Committee on Manufactures, in the interest of 
higher duties for the sake of " protection." New England, 
as voiced by Silsbee of Massachusetts and Foot of Connecti- 
cut, still opposed the protective system ; and even Lowndes 
of South Carolina, who had reported the bill of 181G, was 
scared by the steady push of the manufacturers, and tried 
to stem the current of increased duties. Let Foot speak for 
the opposition : " Sir, gentlemen declare that this measure has 
been requested by the merchants of our country, and that the 
agricultural interest does not object to it. This bill has been 
before the public but about one week; and if, Sir, the commer- 
cial and agricultural interests of our country had as many 
Representatives on this floor as there are gentlemen of one 
profession in Congress, you would hear their voice in tones of 
thunder against this bill. Would they consent to pay direct 
taxes to the extent of $20,000,000 annually? Wlio must pay 
your additional duties? The consumers, all icill acknowledge ; 
and it has been truly said, that the agricultural interest com- 
prises nine-tenths of the whole popidat ion. If gentlemen icho 
so strenuously advocate this bill would encourage domestic 
manufactures by using them in their dress, rather than those 
very articles of foreign manufacture which have driven the 
American manufacturer to ruin, Sir, you would afford them 
more efficient aid than any legislative jwovisioiis." The vote 
for the revision stood 90 to GO, and the enhanced taxes were 
on the average perhaps 30%. 

3. We will call our third tariff, which became a law in 
1824, the Clay Tariff. Henry Clay, though Speaker of the 



552 POLITICAL ECONOMY. 

House at the time, took a very earnest part in the tariff- 
debate, advocated the interests of Kentucky in hemp and 
whiskey, and even ventured to call the system of high protec- 
tive duties — now eight years old in the United States — 
the "American System." It was now a savage clash of 
selfish interests. The debates, which were abler than any 
ever b afore had on this topic in Congress, turned mainly on 
molasses, hemp, cottons, wool and woollens, and iron and 
manufactures of it. Kentucky and Louisiana wanted higher 
tariff-taxes on molasses, the raw material of New England 
rum and the rival of sugar, the first, to make rum dear and 
help the sale of whiskey, and the second, to make sugar 
artificially high in the interest of her planters. Ohio and 
the Middle States now wanted tariff-taxes on raw wool ; Penn- 
sylvania wanted higher duties on imported iron products ; 
Kentucky was bound to get good prices for hemp and cordage 
from the ship builders and riggers ; Massachusetts had 
always liked protection on ships, and was coming to like pro- 
tection on cottons and woollens, though Webster voiced the 
common sentiment of New England in this debate by a splen- 
did speech against protection in general ; while South Caro- 
lina now abandoned her position in 1816, and led the general 
South in a strong opposition. Middle and West won the 
day from North and South in the passage of the bill by a 
vote of 105 to 102. The Speaker, doubtful how it might 
turn, enumerated as adverse to the bill, (1) The splendid 
talents arrayed against us in this House ; (2) We are opposed 
by the rich and powerful in the land ; (3) The Executive 
Government afford us but a cold and equivocal support ; (4) 
The importing and navigating interests from misconception 
are averse to us ; (5) The British factors and the British 
influence are inimical ; (6) Long established habits and 
prejudices oppose us ; (7) The reviewers and literary spec- 
ulators are hostile ; and (8) The leading presses of the 
country. 

Let us see how it struck the Speaker himself : " No one 



UNITED STATES TARIFFS. 

mill doubt that the grain of our country produces a spirit equal, 
at least to that produced from molasses; nor our ability to 
produce it in the greatest abundance. He did not mean to take 
up the moral consideration of the question. He intended to 
ask the attention of the Committee to the matter practically . 
A certain amount of spirituous liquors will be consumed, what- 
ever we may wish or thiyik upon it as moralists or j)hilanthro- 
pists. Assuming that practical j^inciple, ice are to consider 
whether it is not better for our country to derive the whole 
profit, both as to the p>roduction of the raio material and. the 
distillation of it, rather than divide it with foreigners. Every 
gallon of spirits distilled from foreign molasses and consumed 
within the country takes the place of a gallon of spirits dis- 
tilled from domestic produce. The foreigner enjoys the benefit 
of the raw material, and we that of its manufacture only. 
Tliis latter advantage tee should still 2)0ssess, if we substituted 
a native raw material for that which is furnished us from 
abroad." The tax on molasses, accordingly, went up to ten 
cents a gallon ; and similar considerations urged in behalf 
of hemp carried up the duty on that also from §30 to 
$44.80. Neither rise was carried, however, except in the 
teeth of pungent truths thrown in on all sides by members 
from New England. Let Webster sample these : " One is a 
little curious to know with what propriety of speech this imita- 
tion of other nations is denominated an ' American policy.' 
ivhile, on the contrary, a preference for our own established sys- 
tem, as it now actuiUv exists, and always has existed, is vailed 
a ' foreign policy.' This favorite American policy is what 
America has never tried; and this odious foreign policy is 
what, as we are told, foreign states have never pursued. Sir, 
that is the truest American policy which shall most usefully 
employ American capital, and American labor, and Lest sus- 
tain the ivholc population. With me it is a fundamental 
axiom, it is interwoven with all my opinions, that the great 
sts of the country are united and inseparable; that agri- 
culluro, commerce, and manufactures, will prosper together, 



554 POLITICAL ECONOMY. 

or languish together; and that all legislation is dangerous 
which proposes to benefit one of these without looking at conse- 
quences which may fall on the others. All domestic industry 
is not confined to manufactures. TJie employments of agricul- 
ture, commerce, and navigation are all branches of the sam.4 
domestic industry; they all furnish employment for American 
capital, and American labor. And when the question is, 
whether new duties shall be laid for the purpose of giving fur- 
ther encouragement to particular manufactures, every reasona- 
ble man must ash himself, whether it can be given without 
injustice to other branches of industry. TJie true reason, Sir, 
why it is not our policy to compel our citizens to manufacture 
our own iron, is, that they are far better employed. It is an 
unproductive business, and they are not poor enough to be 
obliged to follow it. If we had more of poverty, more of mis- 
ery, and something of servitude, if we had an ignorant, idle, 
starving population, we might set up for iron makers against 
the world. There is no reason for saying that we will work 
iron because we have mountains that contain the ore. TJie 
true inquiry is, can we produce the article in a useful state at 
the same cost at which we can import it. And since it is 
stated that we have great quantities of fine land for the pro- 
duction of hemp, of which I have no doubt, the question 
recurs, why is it not produced? " 

Strong and unanswerable as were most of his points, Web- 
ster went into this race weighted, and was beaten. He was 
not ready to apply throughout his own fundamental doc- 
trines. Ships may be wholly protected by a navigation law, 
and cottons and woollens to a certain extent ; then, why not 
to any extent iron and hemp? Raw bar and bolt iron, which 
was made $7 in 1816, and was carried up to $15 by Bald- 
win in 1820, now rose to $22.40 a ton. In spite of Web- 
ster's emphatic words in this debate, — " I consider the cotton 
manufactures not only to have reached, but to have passed, 
the point of competition; " the minimum on cottons waa 
raised to 30 cents ; and a minimum for woollens was for the 



UNITED STATES TARIFFS. boii 

Bxst time adopted, namely, 33/,- cents, while the duty on 
woollens was made 30%, to be raised the next year to 33.1% . 

W liile things were going lively, the wool-growers thought 
that they must have something too. It was proposed and 
ultimately passed, that cheap wool should be taxed lo%, 
and other wool 20% the first year, 25% the next year, ami 
30% thereafter. Naturally enough the woollen manufac- 
turers did not like this, and hardly thought the increased 
duty on woollens balanced it ; Webster said : " This bill pro- 
poses, also, a very high duty on imported wool; and as far as 
I can learn, a majority of the manufacturers are at least ex- 
tremely doubtful whether, taking these two provisions together, 
the state of the law is not better for them now than it would 
be if this should pass." It was suggested that the duties on 
wool be struck out. On this point hear Livermore of New 
Hampshire: " He said there was a character in the Eastern 
part of the Union known by the name of the New England 
farmer, whose voice he wished might be heard on the pres- 
ent question. "When the bill appeared, he had looked it over 
with anxiety to see what had been done for that character, 
and he found only two items in it to compensate him for all 
the rest ; these were the duty on wool and the duty on tal- 
low. There are memorials against the duty on wool from 
men who raise a great many sheep, but they are men who 
own at the same time large manufacturing establishments, 
and take on them the name of farmers. They are capital- 
ists ; that is their proper name. But these were not to be 
hoard on the interests of the farmer. To him this tariff is a 
bitter pill. Do give him a little gold on the outside, just to 
cover it, and take off some of the bitter taste. If labor is 
to be protected, let it be protected. Don't give it a less 
market than it has already." 

The dissatisfaction of the South was well expressed by 
Govan of South Carolina : " TV^'.s- House, Sir, has been iuun- 
"■ it 'h petitions and memorials from the noisy and clam- 
orous manufacturers of our country, ambitious of their oun 



556 POLITICAL ECONOMY. 

personal aggrandizement, and ivith a view to the accumulatio i 
of wealth. They are in favor of an increase of duties. TJte 
noise and clamor come from a few clamorous sets of manufac- 
turers, who I venture to say, could not prosper under any 
state of things, even with an entire prohibition. But I ash, is 
it just or reasonable that we should be called on to protect the 
improvident and unskilful manufacturer, who has Ms factory 
in a section of country possessing few or no natural advan- 
tages ? We may go on passing tariff upon tariff, and, Sir, 
we can never benefit the Western grower of hemp, or the manu- 
facturer of cotton bagging. No merchant sends a single dol- 
lar abroad but what he receives in return something which he 
considers more than an equivalent, for every exchange is a 
quid pro quo. Any thing for revenue, but not a cent for 
monopoly." The average duties under the Clay tariff were 
about 33%. It is an excellent proof, that industries which 
are petted and legislatively protected do not long remain 
satisfied with what they receive, but are soon clamorous for 
more " protection," that the Calhoun tariff gave most of the 
interests described by Govan large protection: eight years 
run on, and they call for more : they get it : are they satis- 
fied ? "Why should they be ? Instead of being taught to rely 
on themselves and on their natural advantages, they learn to 
lean on their governmental privilege of taxing their fellow- 
citizens in their own behalf. Besides, when one gets help in 
this way, others must have it too, and all these are soot 
taxed to help still others, " and still they come," till all are 
impoverished together. 

4. The next tariff was passed in 1828, and was called io 
the politics of that time the Abominations Tariff, whict 
designation it may well bear till the end of time. Thf 
manufacturers of course had sent in new petitions and 
memorials by the barrelful to secure certain prohibitive 
tariff taxes, and had held a convention at Harrisburg whose 
demands in this direction were so preposterous that Buchan- 
an, a Pennsylvania protectionist, thus denounced them on 



UNITED STATES TARIFFS. 557 

the floor of the House: " In my opinion no combination of 
vool growers and wool manufacturers should ever attempt to 
dictate a tariff to the people of the United States, for they 
would be more than men if self-interest did not prejudice their 
judgment^ and call forth propositions for their own benefit at 
the expense of the community ;" but the opposition to tho 
whole protective and prohibitive system had now become, 
strong in argument and conviction, though it realized the 
hopelessness of argument against measures which derived 
no part of their impulse from reasoning, as McDuffie of 
South Carolina said ; " Although experience admonishes us of 
the impotence of argument against measures of this descrip- 
tion, it is a duty we owe as zvell to our constituents as to the 
nation at large, to protest against the passage of a bill preg- 
nant with so many evils, and to demonstrate its injurious and 
destructive bearing upon those great interests which we are 
wider the most solemn obligations to protect; " the opposition 
was not strong enough in numbers to prevent the passage of 
the bill, but it was able to load it down with objectionable 
features and make it in many respects distasteful to its advo- 
cates ; a political design also to make the protective system 
unpopular appeared and was indeed avowed, but the friends 
of protection, in view of the higher duties on many articles, 
came to the conclusion to support the bill notwithstanding 
its odious features, and they swallowed the whole with the 
best grace they could ; and Webster, after strenuous but 
fruitless efforts to reduce its " abominatious," for the first 
time in his life voted for a general bill involving high pro- 
tective features, claiming that Massachusetts, in spite of her 
protests in 1824, had been forced into manufactures by the 
policy then adopted, and that she now protested through him 
that her new investments should be maintained. All this is 
one reason for the name of this tariff, and a better reason 
will appear pretty soon. 

Aside from great public considerations and disasters, the 
interest of this tariff turns mainly on the man whose naint 



558 POLITICAL ECONOMY. 

has just been mentioned. In his great speech of 1824, on 
the whole the greatest tariff-speech ever made in Congress up 
to the present time, he admitted the ample protection accord- 
ed to cottons and woollens in the Calhoun tariff, and could 
not bring himself to support the higher rates on those and 
other select products of the Clay tariff . "It is understood 
that the present existing duty operates pretty much as a pro- 
hibition over those classes of cotton fabrics to which it applies. 
The proposed alteration would probably enable the American 
manufacturer to commence competition with higher priced fab- 
rics; and so woidd, perhaps, an augmentation less than is 
here proposed. I consider the cotton manufactures not only to 
have reached, but to have passed, the point of competition. I 
regard their success as certain, and their groivth as rapid at 
the most impatient coidd ivell expect. If, however, a ptrovision 
of the nature of that recommended here, were thought neces- 
sary to commence new operations in the line of the same manu- 
facture, I should cheerfully agree to it, if it toere not at the 
cost of sacrificing other great interests of the country. I need 
hardly say, that, whatever promotes the cotton and woollen 
manufactures promotes most important interests of my con- 
stituents." The Clay tariff passed nevertheless ; and now in 
1828, "Webster supports, though reluctantly, a bill adding 
enormously to the rates of 1824 on wool, woollens, cottons, 
hemp, flax, glass, molasses (indirectly) , and a few other pet 
articles. The subtle device of the minimums had free play 
and broad scope in this tariff of Abominations. Webster 
was now in the Senate. His speech was much shorter than 
that of 1824, as befitted the place, and was confined in large 
part to indignant protests against certain features of the bill, 
particularly the molasses tax. As he always had this speech 
printed in all editions of his works next after that of 1824, 
as if to provoke comparison between them, it is certain, that 
he was not conscious of any great defection in it from for- 
mer principles avowed ; and although he then and afterwards 
brought forward in defence of protection arguments which 



UNITED STATES TARIFFS. 5">9 

Political Economy pronounces unsound, and although there 
doulitless mingled in with his motives a desire to gratify 
powerful friends and constituents who were directly inter- 
ested in high duties, there is good reason to helieve that his 
departure from sound principles was never so radieal as has 
been commonly supposed. He said : " 77iis subject is sur- 
rounded by embarrassments on all sides. Of itself, hoioever 
wisely or temperately treated, it is full of difficulties; and these 
difficulties have not been diminished by the particular frame oj 
this bill, nor by the manner hitherto pursued of proceeding 
with it. Those icho intend to oppose this bill under all circum- 
stances, and in all or any forms, care not how objectionable it 
now is or how bad it may be made. Others, finding their own 
leading objects satisfactorily secured by it, naturally press for- 
ward, without staying to consider deliberately how injuriously 
other intei'ests may be affected. Sir, let us look for a moment 
at this molasses tax. Tliis tax is to be kept in the bill, in 
order that New England may be made to feel. Let gentlemen 
assign their motives for thus taxing their own constituents as 
well as the people of New England, and abide their judgment ; 
but do not let them flatter themselves that New England cannot 
pay a molasses tax as long as North Carolina chooses that such 
a tax shall be paid." 

The duties under this tariff averaged about 43% on dutia- 
ble goods, and about 37% of the value of the entire imports. 
Both the debate and the operation of the bill stirred up 
passions from one end of the country to the other. It is a 
tariff of abominations, because it stands prominent in the 
line of the direct causes of the late civil war. The plautiug 
States, on which the burden of these duties chiefly fell, dis- 
covered a deep discontent ; the speeches of members from 
the South forewarned of this discontent, while the bill was 
still pending ; and after it passed, this feeling became per- 
vading, and left a large section of the Union uudcr the 
painful belief that they were injured and oppressed by this 
branch of federal legislation. Calhoun, then Vice-President, 



560 POLITICAL ECONOMY. 

had hoped that President Jackson would co-operate with him 
to bring the protective system to an end ; but that hope 
failing for political reasons, he betook himself for a remedy 
to the Sovereignty of the States, and developed and main- 
tained till the day of his death those doctrines of Nullifica- 
tion and Secession, which were only wiped out in the blood 
of the late war. Many considerate men in other sections of 
the Union, who had been friendly to the protective polity, 
seeing in the light of these debates that it is impossible in 
the nature of things that one home product can be " encour- 
aged " by a tariff without a corresponding ' ' discouragement ' ' 
of other home products, determined to change their course 
after the inpending presidential election should be over. 

5. The reader has doubtless noticed, that the tariffs so far 
treated followed pretty closely the years of the presidential 
elections. The last two tariffs particularly were all mixed 
up with president-making. So again in 1832, Clay went 
into the national canvass against Jackson on the avowed 
platform of high protective duties. He was beaten. The 
country seemed to indicate its preference for a different 
system ; even before that election took place, a tariff bill 
had been passed (July, 1832) , characterized by Appleton of 
Massachusetts li asa fair compromise, as a harbinger of peace, 
and of reduced excitement;" soon after the election, Verplanck 
of New York, chairman of the Committee of Ways and 
Means, reported a bill which divested the tariff of most, if 
not all, of its protective features, which reductions would 
have gone into effect all at once in case the bill had passed ; 
and under these circumstances Clay himself brought forward 
in the Senate a bill, as an olive branch to the South, which 
soon became the Compromise Tariff of 1833. Clay and 
Calhoun were not then on speaking terms, but the latter 
was consulted through a third party, and. agreed to regard 
the former's plan as a satisfactory arrangement of the tariff 
controversy, and both spoke and voted for the bill, which 
passed just in time to prevent the impending collision between 



UNITED STATES TAEIFFS. 561 

South Carolina and the general government. Webster op- 
posed the bill, as a practical abandonment of protection, 
both by a series of resolutions and also by argument and 
vote ; but it passed the Senate 29 to 1G, and the House 119 
to 85. The bill adopted a sliding scale in reference to all 
duties over 20% in the bill of 1832, providing for their 
gradual reduction on each alternate year till 1842, when ana 
thereafter the rate on all these goods should be 20% on the 
home valuation. This was what is called a "horizontal 
tariff," and it is not a good kind, for it disregards discrimi- 
nations as to the rate on each article which will yield the 
most revenue to government with the least burden to each 
buyer. The horizontal principle implies ad valorem duties 
only, and disregards equally the claims of revenue, free 
trade, and protection. Free trade demands that every tax 
iu a tariff shall be levied for revenue only, and so levied that 
the treasury shall get all that the people are made to pay. 
Protection demands that the people pay a great deal more 
than the treasury gets, and the more the better. Calhoun 
did not like the "home valuation" clause, which of course 
increased the duties ; but he and his friends made no intelli- 
gent fight for free trade, and complicated their position 
besides with doubtful constitutional questions. However, 
under the Compromise Tariff the taxes were slowly but 
decidedly lowered, and averaged between 1833 and 1842 
about 32%. All sections believed the tariff-controversy 
settled, the country was prosperous, agriculture was extend- 
ing, almost no tariff could swamp our industries, and cei- 
tainly not one which largely threw off taxes. 

6. Bank questions, inflation, internal improvements, the 
consequent crash of 1837, and the hard times following, 
occupied the public mind for a number of years and brought 
the Whigs into power through the election of 1840. The 
Whigs believed in broad functions of government. They 
advocated the paternal theory of public administration. 
They were a party of privilege. -As the writer remembers 



562 POLITICAL ECONOMY. 

very well, extravagant expectations were held out in th<, log- 
cabin and hard-cider campaign of 1840, that, if Harrison 
were ejected, times would change and the rich take care of 
the poor and the golden age come in. Precisely how all this 
was to be brought about, was not clear even to the minds of 
the orator and song- writer of that day, and still less to the 
minds of the masses surging in reaction from the party 
under whose administration the financial crisis had happened. 
The Whigs were not unanimous for going back to high pro- 
tective taxes, and the Democrats were not unanimous in 
their adherence to the principles of the Compromise Tariff. 
Said Clay, the Whig leader in the extra session of 1841 : 
" Garry out the principles of the Compromise act. Look to 
revenue alone for the support of government. Do not raise 
the question of protection, which I hoped had been put to rest : 
there is no necessity for protection." On the other hand 
Benton of Missouri and Wright of New York, both Demo 
cratic leaders in the front rank, of whom the former had 
voted against the Compromise and the latter was soon to 
vote for the tariff of 1842, disagreed as to policy. Under 
these perplexing circumstances, Harrison dead and Tyler a 
free trader, there was passed the Whig Tariff of 1842. The 
state of public, opinion did not warrant at all the going back 
to the high rates of 1832 ; but the manufacturers must have 
something to reward them for their efforts in the campaign, 
and the iron men particularly secured high duties on iron 
products of all kinds ; and so, much capital and many 
laborers were seduced as usual "into those branches which 
promised factitious rewards, and when the duties were soon 
after removed, thousands of persons were pecuniarily ruined. 
It is impossible to speak in terms too deprecatory of an arti- 
ficial system which inveigles capital and labor into branches 
of business into which they would never have embarked of 
their own accord. Nature alone is stable. The Whig tariff 
was not expected to last ; and it only lasted four years. The 
average of duties on the entire imports was carried ur from 



UNITED STATES TARIFFS. 563 

16% under the Compromise to about 23%, and on dutiable 
goods from 32% to 33%. The Whig tarilf was only an 
eddy in the now pretty steady stream towaids commercial 
freedom . 

7. There was an animated debate in the Senate during the 
spring of 1844, in which Benton took the leading and ablest 
part, in the course of which Wright acknowledged his mis- 
take of two years before and McDuffie agreed that something 
better than the Compromise was now needed, which showed 
clearly in general the direction in which the intellect of the 
country was moving. It was a debate merely : no one pro- 
posed to undo the Whig tariff until after the presidential 
election of the autumn : Clay was again the candidate of 
the protectionists, and the canvass turned largely on that 
question : he was beaten the second time, and the way was 
now open for a liberal tariff framed on sounder principles. 
Polk's Secretary of the Treasury was Walker of Mississippi. 
His principles and policy were in- keeping with the tone of 
the public mind both in this country and in Great Britain. 
The year 184G is memorable in the history of economic 
legislation : it was the year of the repeal of the Corn-laws 
of England ; it was the year of the famous free trade Report 
of our Secretary of the Treasury, which was reprinted for 
circulation by the British House of Commons ; and it was 
the year of the WaSeer Tariff for the United States. The 
repeal of the English corn-laws opened up a new market for 
our agricultural produce ; the Sub-Treasury act was passed 
the same year, which removed the subjects of money and 
banking from our national legislation ; and it was then 
commonly supposed that the subject of "protection" also 
was substantially settled for this country as well as Great 
Britain, for we were keeping at least even step with our 
British cousins to the music of a Free Commerce. 

The key-note of the Walker Tariff was struck in the House 
by Jones of Georgia: " Sir, the exam])le of /Sir Hubert J'<<1 
in the modification of the corn-laws ought to speak in lanyttaye 



564 POLITICAL ECONOMY. 

stronger than any argument I can use. We copied this system 
of protection from England; England has found it ruinous to 
her people of every class; she in her wisdom has abandoned 
it; and are we in our folly still to cling to it? Sir Robert Peel 
was formerly a tory ; he, was brought into power by the tory 
interest, by the landholders, to protect their interests. With a 
iwble magnanimity he preferred the interests of the country to 
those of a class; he has abandoned the interests of the land- 
proprietors, and espoused the cause and the interests of the 
ccurJry. Would to God there were some Sir Robert Peels in an 
American Congress, who would abandon the interests of a class, 
and take the interests of the country for their guide." The 
Bill passed the House by a vote of 114 to 95, and reduced 
duties down to about the standard of the " Compromise " of 
1833, although it discriminated, as the Compromise did not, 
between goods that could be produced at home and those that 
could not. In short, it approached in its principles and de- 
tails more nearly to the Hamilton tariff than any other before 
or since, though the general rate of duties in it was higher. 
It applied the ' ' horizontal ' ' principle within certain pre- 
scribed schedules, but not to the imports as a Whole. Walker 
understood the principle, that lower taxes are apt to yield 
higher revenues, but the yield of his tariff surprised even 
him. In 1846, it was estimated to furnish $20,000,000 a 
year: it actually furnished $60,000,000 in 1856. Indeed, 
the revenue rose beyond the legitimate needs of the govern- 
ment, and large sums from the surplus were expended in 
buying up bonds not yet due at a high premium for the sake 
of emptying the Treasury. Consequently, reductions were 
made in 1857, which lowered the duties about one-quarter, 
and applied remissions to the raw materials of manufactures 
and enlarged the free list. The West did not like the les- 
sened duties on wool and hemp and lead produced there, and 
declaimed against the "incidental protection" accorded to 
Eastern manufacturers through the free list and lower duties 
on materials. There was indeed sharp practice in that direc- 



UNITED STATES TAIilFFS. 565 

tion at that time. So it goes. So long as there is any " pro- 
tection " whatever, somebody will be justly roused by its 
inherent injustice. Though the national government had 
now nothing to do with banking and paper money, the States 
had unduly multiplied their banks, and the banks had unduly 
multiplied their bills, the whole credit-system became unduly 
extended, and the inevitable crash of credits came in the 
autumn of 18 5 7, the imports of course fell off, the revenue 
was diminished, and a part of the blame for this bad state 
of things was foolishly cast on the contemporaneous letting- 
up of customs taxation. 

As showing the drift of public, opinion, and as proving 
that the United States were quite as advanced in 1858 as 
Great Britain itself in the march towards commercial free- 
dom, and also as indicating that the leading men in Con- 
gress believed that the remissions of 1857 were in the line 
of progress and prosperity, we quote a remarkable series of 
Resolutions reported by the majority of a special congres- 
sional committee (only two members dissenting) in the 3-ear 
1858. At that time the Walker Tariff of 1846 had been 
running for 12 years, and diffusing the blessings of a partial 
free trade. The Resolutions call for "more" in the same 
direction — very much more. They even call for an entire 
abolition of customs duties, and a resort exclusively to 
direct taxation. One of the names appended to these strong 
Resolutions was that of F. E. Spinner of New York, with 
whose peculiar chirography as Treasurer of the United States 
the nation became afterwards amusingly familiar. Here are 
the Resolutions : 

1. Resolved, Tliat the vast and increasing expenditure of 
the Federal Government indicates the necessity of a change in 
our fiscal system, whereby the protective policy shall be entirely 
abandoned, and a resort had at as early a period as may be 
practicable, exclusively to direct taxation. 

2. Resolved, That the existing tariff is defective, as being 
founded on the protective policy ; as taxing certain articles of 



566 POLITICAL ECONOMY. 

prime necessity too high; as not discriminating sufficiently so 
as to throw the burden of taxation as much as possible on 
articles of luxury, to the exemption of articles of necessity, 
and as placing certain articles on the free list which should 
pay duty ; and that any modifications of the tariff which may 
be made, should be made so as to avoid these defects, and for 
the purpose of using the tariff merely as a fiscal instrumen- 
tality. 

3. Resolved, That the highest development of the industrial 
resources of the country is to be attained by the greatest free- 
dom of exchanges, which can only be thoroughly accomplished 
by the entire abolition of duties on imports, and a resort 
exclusively to direct taxation. 

4. Resolved, That the system of direct taxation presenting 
the most advantages is, for each State to collect and pay ovei 
its quota, to be ascertained by the constitutional rule of appor- 
tionment, thus insuring perfect equality, and dispensing with 
multitudes of federal officers. 

5. Resolved, That the navigation laws should be so modi- 
fied as not to require any portion of the officers and creivs of 
American ships to be American citizens, and that American 
citizens shall be free to purchase and sail foreign built ships 
on an entire equality with American built ships, and that the 
American coasting trade shall be open on terms of perfect 
equality to foreign ships. 

Although the revenue recovered somewhat in 1859 from 
the effects of the severe commercial crisis of two years 
before, and recovered still more the next year, profound 
political troubles were then beginning, the thoughts of the 
people were utterly turned away from tariffs and other modes 
of taxation to Slavery and its intentions and encroachments, 
the expenses of the government were increased by the pros- 
pects ahead, and there came of course a deficit of income in 
relation to expenditures. The tariff duties on the whole 
imports under the Walker tariff, 1846-61, averaged onlj 
18%, and on the dutiable goods only 23%. 



UNITED STATES TARIFFS. 5G7 

8. We come now to the Morrill Tariff of 18G1, which was 
still in force in 1883. This designation includes, like the 
previous ones, all the various supplements aud modifications 
passed in accordance with the leading idea of the original 
Act. The ground thought of the Morrill Tariff in its Listory 
as a whole was, not to get money for the uses of the govern- 
ment, " to pay the debts and provide for the common defence 
and general welfare of the United States," but to get money 
through artificial prices of their wares for certain privileged 
classes of the citizens. There was a mildly drawn resolution 
in the platform of the party that triumphed in 1860 in favor 
of what is called " protection ; " it was a bid for the political 
support of Pennsylvania ; little or nothing was said upon 
that subject in the canvass ; and the people pronounced in 
their verdict on a different set of questions from those in- 
volved in a protective tariff. Seven Southern States had 
seceded, when the bill passed the Senate in February; the 
need of more revenue was imperative ; there was no intelli- 
gent agreement as to the means by which more revenue could 
be obtained ; the existing duties were raised at first about 
one-third ; in August they were raised again, and members 
seized the opportunity of discriminating in favor of articles 
in which they were interested to the extent of diminishing 
revenue by duties which lessened importations. In view of 
such a war as that then impending, the relevant questions 
were, How can we get the most revenue with the least inter- 
ference with the industries of the people? and, How can we 
distribute the tariff-taxes so as to burden the whole people as 
equally as possible? If these questions alone had influenced 
the representatives of the people, the Morrill Tariff would 
never have been heard of. It was a clouded thought, hover- 
ing in many patriotic minds, that what they knew would be 
immediately and immensely beneficial to some of their con- 
stituents would not after all be very harmful to the country 
at large, that carried through the tariff of 1861. But it was 
harmful to the country at large in a high degree. Eulight- 



568 POLITICAL ECONOMY. 

ened public opinion abroad turned more or less against the 
country in consequence ; the people were obliged to pay 
nearly or quite double on some of the necessaries of life 
what the goods were worth in a free market ; some of them 
lost also their best chance of selling a part of the products 
of their industry ; unusual inequality of fortune soon ap- 
peared among the citizens ; while the duties were put so high 
that nothing like the revenue was received from them that 
might have been received. With a much larger revenue in 
gold, a people obtaining their cloths and iron and similar 
goods at something near European or Canadian prices, and 
general industry going forward under its natural conditions, 
the credit of the government would not have sunk so low as 
unfortunately it did sink. The new tariff was not honestly 
adjusted for purposes of revenue, and while it seemed to 
concede something in its free list to the demand for free 
trade, the concession was largely delusive, since many of the 
articles thus admitted free of duty went into manufactures 
protected by higher duties than were ever before levied in 
this country. To put articles on a free list is of itself no 
boon to free trade ; it depends upon the purpose for which 
they are put there ; whether to benefit the whole people or 
only a few persons at the expense of the whole people. In 
all our recent tariff -legislation there is many a snare for the 
unwary. 

It is not needful for our present purpose to give an account 
in detail of the various changes made from time to time in 
the Morrill Tariff. A single specimen of the inequalities of 
which that tariff was full to a surfeit may be given here by 
way of illustration. Ex uno disce omnes. A supplemental 
act that went into operation on the 10th of August, 1866, 
provides, for the sake of increasing the duties, that the costs 
of transportation, shipment, commission, brokerage, and all 
similar charges, be added to the invoice value of imports to 
make up the value on which the duties shall be levied. This 
applies to all dutiable imports, except to long-combing or car- 



UNITED STATES TARIFFS. 



609 



pet icools costing twelve cents or less per pound. Why were 
they excepted? Cannot the carpet manufacturers pay duties 
as well as other people ? They have had a very high protec- 
tive duty on their own completed product. They compelled, 
through Congress, everybody to pay this duty on foreign car- 
pets, aud carried up the price of their own in proportion ; and 
yet this tariff exempted their raw material from an increase 
of duty applied to all other dutiable goods whatsoever ! Ten 
days before this clause went into effect, the Hartford Carpet 
Company declared a semi-annual dividend of 20% ; aud its 
shares were announced as worth $275 each, with the divi- 
dend off. 

On an actual count of the number of distinct rates as- 
sessed on different articles listed in the tariff in 1868, the 
number was found to be 2,317; and the following articles 
actually paid the following rates of duty per centum of the 
value of the articles in that year : — 



Per Cent. 
Common window glass ... 49 

Pig iron 55 

Bar iron 67 

Cast iron pipe 109 

Wood screws GG 

Carpenter squares .... 82 
Sheet lead and pipe . . . . 54 

Lead pencils GO 

Plain cottons 58 

Spool cotton GG 



Per Cent. 

Gunny cloth 81 

White marble 57 

Veined marble 79 

Salt in bags 81 

Salt in bulk 108 

Scoured wool 94 

Washed wool 121 

Blankets (average) .... 82 

Carpets (average) 109 

Paris white 285 



The average duty on dutiable goods in 18G8 was 47.86%. 
The first considerable reduction in the Morrill tariff took 
effect Jan. 1, 1871, and threw off taxes, as compared with 
1869, to the extent of 626,054,748; but it threw them off 
mainly from the revenue, aud not from the protective, parts 
of the tariff: for example, 77% of all this reduction was 
from tea, coffee, cocoa, sugar, and molasses; articles 
the taxes on which go to government, and directly raise tha 



570 POLITICAL ECONOMY. 

price of nothing else. Precisely those articles, therefore, 
are the ones to bear a heavy tax. 

In October, 1871, occurred the great fire in Chicago. In 
the winter following, a bit of legislation took place in Con- 
gress in consequence, which is too instructive to be passed 
by without notice. A bill was enacted to last one year only, 
receiving the signature of President Grant on April 5, 1872, 
to exempt all building materials except lumber from the op- 
eration of tariff taxes for the benefit of Chicago alone. This 
was an emphatic confession on the part of Congress that tariff 
taxes raise the prices of protected goods, and that the remis- 
sion of such taxes lowers the prices of the goods But why 
was lumber excepted from the bounty Of the legislators to the 
unfortunates of Chicago? Because, while the bill was still 
pending, a special car filled with the lumber lords of Michi- 
gan and Wisconsin was rolled to Washington in haste, and 
the potent influence of these men was sufficient to cause the 
express exemption of their product from the intended cheap- 
ening (for one year) of the building materials for Chicago. 
The brief official record of this curious transaction will be 
found in U. S. Statutes for 1872, page 33. 

Congress did not dare to go into the presidential election 
of 1872 with the tariff as it was, especially, as public opinion 
had been roused against some of its more iniquitous features ; 
and accordingly, in that summer, the duties were thrown off 
entirely from tea and coffee, a large number of previously 
taxed articles were put upon the free list, the duties on salt 
ind pig iron were reduced, and a general reduction of 10% 
put on most other protected articles. But the last-named 
reduction was restored by the "little tariff bill" two years 
later. The purely revenue taxes on tea and coffee were 
thrown off under protectionist leadership, in order to give 
color to the claim of retaining the protective taxes for the 
sake of revenue ! The deceptive cry was raised, by Kelley 
of Pennsylvania and other protectionists, of " a free break- 
fas* ~+able" in the subtle interest of commercial bondage; 



UNITED STATES TARIFFS. 571 

seeking to give the impression, on the one hand, that every 
thing on the breakfast-table was to be free, whereas nothing 
on it or around it was to be free except the two beverages 
mentioned, and on the other hand, that the removal of these 
two taxes was a great boon to the people, whereas the motive 
for the removal of these was to continue on the people bur- 
dens tenfold heavier. The duty on raw hides was also re- 
moved at the same time, and the removal of duties leads at 
ouce to increased trade. For example, our whole import and 
export trade with Venezuela amounted to only 83, 345, 145 in 
1870. That Republic sends us nothing of consequence but 
coffee and hides, both dutied in that year. In 1876, our 
trade with that country amounted to 89,299,993, an increase 
of nearly 200%. The increase of the import of coffee and 
hides between those dates was over 320%. The increase of 
nur shipping in the Venezuela trade in the same time was 
from 15 to 134 vessels, from a tonnage of 2,571 to 43,459 
tons, and from 109 hands to 1,255 hands. All this by free- 
ing two articles only, one of which ought still to be taxed. 
Some of the indirect results of just a little freedom are 
seen in the increase of our exports of tanned leather from 
82,864,000 in 1872 under taxed hides, to 87,940,010 in 1876 
under free hides. 

The average duties on dutiable goods in the fiscal j'ear 
1874 were 38.50% ; but many of the tariff rates were 
decidedly raised in February and March of the next year ; 
so that, any one may still read in an official copy of the 
tariff, among many other and higher and more complicate:". 
rates, of 60 different articles put iu at that time at 60%. 
But there were some remissions also and improvements in 
ihe years thereabouts. Quinine, which had borne 20%, in 
the prospect of yellow fever at the South and in disgust 
at the price of a medicine in universal use kept factitious 
for the benefit of a single firm in Philadelphia, was put up 
on the free list ; the price shortly settled to a point quite 
below what might have been expected from the mere remis- 



572 



POLITICAL ECONOMY. 



sion, and in 1883 it had fallen more than one-half ; there 
were then five firms making the article from the free material, 
instead of one firm under the taxed material ; the House 
Committee of Ways and Means in their tariff bill of 1883 
put; in a duty of 10°f again on quinine, but after an indig- 
nant burst of eloquence on the floor from McKensie of Ken- 
tucky, author of the free quinine bill, the House struck out 
the item by a vote of 108 to 57 ; and the hope may now be 
indulged that a free people may hereafter be permitted to 
nurse their aches and agues with a free quinine. The Reci- 
procity Treaty with the Sandwich Islands was another step 
in the right direction taken at about the same time. Our 
exports to those islands were only $655,174 in 1875, but 
rose under the treaty to $3,272,172 for the fiscal year 1881- 
82. Our imports also from the islands grew during that 
period from $1,227,191 to $7,646,294. 

These little points of light serve the better to display the 
blackness of darkness of the Morrill Tariff as a whole. The 
bulk of the rates continued monstrously high and mon- 
strously complicated. In 1882, the following articles actually 
paid the following rates of duty : — 



Per Cent. 

Cleaned rice 95 

Epsom salts 78 

Chiccory 102 

Spool thread 77 

Common window glass ... 66 
Band and hoop iron .... 75 
Horseshoe nails 98 



Per Cent , 

Boiler plates 69 

Locomotive tires 79 

Steel rails 99 

Balmoral alpaca 91 

Blankets 89 

Woollen hosiery 100 

Bunting 121 



If it be said, that the Morrill Tariff was very productive 
cf revenue, that may be admitted, for, of course, if the 
people continue to trade at all, such a tariff must be produc- 
tive, splice something near to half the value of the dutiable 
goods imported goes to government ! To say that such a 
tariff is productive is only to say that it is hard work to 
destroy the commerce of a great people ! The question is, 



UNITED STATES TARIFFS. 



573 



would not a reasonable system be even more productive? At 
present, the government indeed gets much ; but the people 
pay a great deal more ; inasmuch as the ground-thought of 
the whole system is to raise the price of favored domestic 
products through the tariff-taxes on corresponding foreign 
products. Some of these taxes exclude the foreign product 
entirely : in this case, the people pay much, and government 
gets nothing. In other cases, the people are made to pay 
five, and even ten, times as much in consequence of a tariff- 
tax as the government receives from it. Can such a system 
properly be called productive ? In round millions of dollars 
the record of customs revenue is as follows : — 



18G1 $39 

1862 49 

1863 69 

1864 102 

1865 85 

1866 179 

1S67 176 

1868 164 

1SG9 180 

1870 195 

1S71 206 



1S72 $216 

1873 188 

1S74 163 

1S75 157 

1876 148 

1877 131 

1S78 130 

1S79 137 

18S0 1S7 

1881 108 

18S2 220 



The following table compiled by Philpott of Iowa from 
the national censuses shows in striking figures the relatively 
slow rate of progress in the nation under the Morrill Tariff 
as compared with the progress made in all the leading lines 
under the Walker Tariff. The comparison lies in the per 
centum of increase over the previous decade in thirteen 
essential items of growth of the period 1850- GO relatively 
to each of the periods 18G0-70 and 1870-80. The average 
of the last two periods is taken for the sake of an easier 
comparison of the progress of the one decade with the 
average of the two later ones. The figures give the per 
centum of increase over the previous decades. 



574 



POLITICAL ECONOMY. 



Lines of Progress. 




a i 



StHS 



Population 

Wealth . 

Foi'eign commerce, aggregate . . 
Foreign commerce, per capita . . 

Railroads, aggregate 

Railroads, per capita 

Capital in manufactures .... 
Wages in manufactures, aggregate 
Wages in manufactures, per hand 

Products 

Value of farms 

Farm tools and machinery . . . 
Live stock on farms 



35.5 

126.6 

131.0 

70.3 

240.0 

150.0 

90.0 

60.3 

17.3 

85.0 

103.0 

62.0 

100.0 



26 2 
61.0 
45 6 
15.2 
69.0 
34.0 
66.0 
58.2 
9.4 
69.6 
23.6 
27.7 
17.3 



A deep dissatisfaction with the Morrill Tariff, as thwarting 
the drift of the previous twenty-five years both in this 
country and in Great Britain, spread steadily among the 
people as its deceits and burdens were popularly discussed ; 
protectionist leaders, as they had raised the cry in 1872 of 
" a free breakfast-table " to divert the public mind from the 
real issue, so with the same intent they raised in 1882 the 
cry of a "Tariff Commission;" and Congress authorized, 
and the President appointed, commissioners, each one of 
whom was a protectionist, and most of whom were person- 
ally connected with protected industries. Their names were 
mostly unknown to the country at the time of their appoint- 
ment ; and some of their private correspondence as commis- 
sioners, since published, is far from being to the credit of 
their integrity or intelligence. One of them, Kenner, a 
• representative of the Louisiana sugar interest, in one of 
these letters, displayed an unseemly anxiety to establish 
through protective duties an identity of interest between the 
producers and adulteraters of sugar, — " the mere fact of our 
mentioning your interest in public as identical with ours 



UNITED STATES TAREIFFS. 575 

creates a prestige in its favor ; " and another of them, Porter, 
iu a letter to Kelley, gauged the calibre of his own mind by 
a strain of fulsome adulation, as follows: " On my bed lay 
a large package, which, on opening, I found to contain that 
long-expected and magnificent picture of yourself . It is cer- 
tainly superb, and in the moment of ecstasy which followed 
its reception, I could not withstand the temptation to take it 
downstairs and show it to my colleagues, who all agreed that 
it was one of the finest photographs of one of our strongest 
men. I put it on my mantel-piece and looked at it for a 
long time and could almost fancy I was communing with 
you." 

No intelligent person expected from a commission so con- 
stituted any substantial alleviations for the people from the 
burdens of the Morrill Tariff, but only manipulations, — "to 
change the place and keep the pain." Their Report to 
Congress was a marvel. It stroked a little here, and struck 
a little there. It changed the classification of imports, in- 
creased the free list in unimportant articles and in certain 
raw materials, plausibly reduced certaiu duties which re- 
mained however still prohibitive, actually reduced a few 
duties to the prospective relief of the people, and positively 
enhanced a number of taxes over the old law especially on 
blooms, and doubled the rates on washed wools, and provided 
that cow's hair should come in as wool. 

Soon after New Year's, 1883, Congress went to work iu 
earnest in both Houses on the basis of the Report of the 
Tariff Commission. Shameless as the protectionist debaters 
in Congress have been from the start in letting it be plainly 
seen that the sole motive of their effort was a rise of price 
in certain goods, which their fellow-citizens would be com- 
pelled, under the law, to pay, the late debate iu the House 
was by far the most shameless and avowed in this respect of 
any that ever transpired there. In the last days of that 
debate all pretence, even on the part of the protectionists, 
of any action for the good of the country at large, dropped 



576 POLITICAL ECONOMY. 

utterly out of the discourse ; the old pretences and disguises 
and subterfuges of " home markets " and " higher wages " 
and "commercial independence," were no longer put for- 
ward, even in word, under the clash of selfish interests and 
in the eagerness to secure for their wares an artificial price, 
to be paid by their countrymen ; proposed reductions in 
tariff taxes were fought off, and in many cases still higher 
taxes were urged on, under the open avowal that, unless 
home prices were thus stiffened by these tariff taxes, they 
could not sell their wares at a profit ; one honorable memter 
from New Jersey brought his pottery wares upon the floor of 
the House, and tried to demonstrate to his fellow-members 
that, unless these very goods were artificially raised in price 
by " protective" tariff rates, which should shut out foreign 
competition, he could no longer tread his clay and work his 
wheels to a profit to himself ; in other words, he and others, 
like circumstanced, persuaded Congress to pass laws com- 
pelling their countrymen to hire them to carry on unprofitable 
branches of business (as they alleged) , by giving them more 
for their products than similar goods were confessed to be 
worth in an open market ; and the same confession and 
avowal underlay every speech on that side during that ses- 
sion of Congress. 

As always in like circumstances, the lobby was there in 
full force. Jan. 31, a newspaper as nearly neutral as pos- 
sible on the tariff question printed the following paragraph 
on this point : " The pressure from, the numerous tariff lobbies 
is something tremendous and is increasing every day. Most 
of the iron and steel lords of Pennsylvania and leading cities 
of the country are here working night and day to secure action 
favorable to their interests. They are now chiefly disturbed 
over the metal schedule in the Senate. They are bringing to 
bear every possible influence to secure an amendment of the 
schedule when it is brought before the Senate from the com- 
mittee of the whole. If they can succeed in increasing the 
rates in this way, their viztory will be won, and they will not 



UNITED STATES TARIFFS. 577 

need look to a conference committee to respond to their de- 
mands. ' ' 

Nevertheless the Conference Committee ao between the 
two Houses became needful before the bill could be enacted. 
Senator Morrill, after whom this tariff was originally named, 
was active in this conference, and was said by a colleague to 
have contributed in it to some reduction of the propoccd 
duties on wool and some increase on woollens and cottons. 
He had a finger in the first bill of 18G1, and he had a finger 
in the last bill of 1883, and for this reason as well as on the 
main ground of our classification the tariff continued to be 
the Morrill Tariff. The Conference Committee cut right and 
left on the work of the two Houses. When the House 
wanted a duty of 815 on steel rails, and the Senate &15.G8, 
the Conference instead of striking between the two, fixed it 
at 81". Both Houses had agreed on 50 cents a ton on iron 
ore : the committee deliberately put it up to 75 cents. On 
green glass bottles, there was an increase of duty to 66$ , 
being 31% more than the House and 3G% more than the 
Senate had demanded. There was much color of truth in 
what was said at the time by a daily paper: " The fact is 
that the Conference Committee without reference to the nomi- 
nal disagreements of the two Houses set themselves to work to 
placate Sherman and Kelley." 

The bill vas enacted on the last day of the session as it 
came from the hands of the Conference Committee ; and 
it may be truthfully aud thankfully conceded, that it was in 
many respects an improvement over what had preceded. 
The rule of 18GG was abandoned, that commissions and 
freights and other charges should be included in the dutiable 
value of goods imported. That is equivalent to a lowering 
of the duties pro tanto. The free list was certainly in- 
creased, and it had been increased before over the earlier 
time of the Morrill Tariff; because, while in 1867, free 
artieles imported were less than 5% of the whole, they be- 
came in 1882 30%, and perhaps may become under the law 



5T8 POLITICAL ECONOMY. 

of 1883 33-J%. The number of specified articles on which 
the new tariff fixed the rates of duty was 631. Of these, 
524 continued to be described as the tariff commission de- 
scribed them, and 409 retained the commission rate of duty ; 
in 50 cases more there was a substantial agreement with the 
commission rate ; and of the 1 72 cases of departure f rojn 
the commission rate, 98 were fixed at a lower rate, and 46 
at a certainly higher and 28 at a probably higher rate. As a 
sample of slight remissions, for which the million ought to 
be duly thankful to the powers that be, the tax on spool 
cotton was reduced from 24 to 14 cents per dozen spools. 

In the mean time public opinion is forming, informing, 
and formulating, itself. New England is slowly and strongly 
swinging back to her old and sound position. She must 
indeed bear her share of the blame for getting and keeping 
the country in the quagmires of Protection, and now put to 
her whole strength in helping to get it out. Boston is anx- 
ious to regain its ocean traffic, and an invincible obstacle 
to this is the navigation law and a protective tariff. ' ' Go 
to the ocean!" thundered Webster in 1814, and the echoes 
of that wise word still linger along the wharves of that city. 
The West is still more pronounced than the East in favor 
of commercial freedom, partly from the fact that its vast 
losses from the opposite are perfectly patent to ordinary 
intelligence. There is no reason to doubt, that the South 
holds yet in substance and with firmness the good traditions 
of its elder statesmen. The Middle States, though they 
move slowly as becomes their weight, are sure to move in 
the right direction. A clean and sound and simple system 
of national taxation is just as sure to be enacted in the next 
coming years as the sun is sure to shine ; for the sun has 
already shone in too much on the motives and methods and 
meaning of ' ' protection ' ' to allow it length .of days or lease 
of life in the good time coming. 

The brief review of our tariff legislation in this chapter 
amply confirms the strong words of Professor Sumner: 



UNITED STATES TARIFFS. 579 

" Practice and experience right here in the United States have 
established the practicability and advantage of absolute Free 
Trade b>j evidence, which, forioeight, uniformity, concentration 
and ptosiliveness, is immeasurably greater than the evidence 
which can be brought for any other theory whatever. " In tho 
light of this chapter let us read the truth iu the hues and 
between the lines of the following official statement of Sec- 
retary Evarts : "The average American workman perfomu 
from one and a half to tioice as much work as the average 
European workman. This is so important a point in connec- 
tion with our ability to compete with the cheap manufactures 
of Europe, and it seems, on first thought, so strange, that I 
will trouble you with somewhat lengthy quotations from the 
reports in support thereof." Let us also see the great sig- 
nificance of the words in a like Report to Congress of Secre- 
tary Blaine: " Undoubtedly the inequalities in the wages of 
English and American operatives are more than equalized by 
the greater efficiency of the latter and their longer hours of 
labor. If this should prove to be a fact in practice, it would 
be a very important element in the establishment of our ability 
to compete with England for our share of the cotton-goods 
trade of the world." The venerable Governor Seymour of 
New York confirms in these wise words the grand distinction 
drawn in this chapter and the one preceding : " It is a reve- 
nue tariff when the duties collected are needed to bear the cost 
of government and to pay the national obligations. By pro- 
tective tariff, I mean imposing taxes upon all classes of citizens 
to build up the inosperity of those engaged in special pursuits, 
thus placing them upon a different footing from the great mass 
of oxer citizens." 

The truth is, the intelligence of the people of the United 
States is keen enough now to appreciate the wit of Dean 
Swift in the appended passage, and to repudiate pretty soon 
and once for all the selfish and short-sighted and misan- 
thropic tenets of a miserable policy. " Tlie first man 1 saw 
was of a meagre aspect, with sooty hands and face. Ilis hair 



580 POLITICAL ECONOMY. 

and beard long, ragged, and singed in several places. His 
clothes, shirt, and skin, were all of the same color. He had 
been eight years upon a project for extracting sunbeams out of 
cucumbers, which were to be put into phials hermetically sealed, 
and let out to ivarm the air, in raw and inclement summers. 
He told me, he did not doubt, in eight years more, he should 
be able to supply the Governor's gardens with sunshine, at a 
reasonable rate; but he complained that his stock ivas low, and 
entreated me to give him something as an encouragement to 
ingenuity, especially as this had been a dear season for cu- 
cumbers." 

We may now summarize very briefly : — 

1. English colonists in America were not afraid of Free 
Trade, but established it for themselves as a boon before the 
Declaration of Independence. 

2. TJieir first treaty as a nation was a commercial treaty 
with France, founded upon reciprocal utility and the just rules 
of free intercourse. 

3. Steps taken toioards a better and wider Commerce were tlve 
steps leading to the Constitution of the United States. 

4. Alexander Hamilton was a willing witness to the thriving 
state of domestic manufactures in 1791. 

o. Fisher Ames demonstrated in debate the inevitable antag- 
onism between artificial manufactures and agriculture. 

6. Daniel Webster's great speech of 1824 answered for sub- 
stance his own and others' later sophistries. 

7. Calhoun's well-grounded opposition to protective tariffs 
led on directly to his ill-grounded doctrine of Secession and to 
the late Civil War. 

8. It is too late in the history of the world and of Chris- 
tianity, too contrary to common sense and good neighborhood 
among nations, and too hostile to the real interests and power 
of any nation, to try to maintain anywhere heathenish and 
loss-begetting restrictions on trade. 



TAXATION. 581 



CHAPTER XIV. 

TAXATION. 

There oan be no science of Taxation in the sense in which 
there is unquestionably a science of Production. Production, 
as we have now seen, goes forward in accordance with posi- 
tive natural forces, which God has appointed, and which men 
can ascertain and generalize and profit by. Nature bids 
men work and save, buy and sell, invent and transport, navi- 
gate and grow rich ; but Nature has given no whisper, that 
we can hear, about any taxes. That is the work of Society. 
That is something negative, not positive. Taxation is indeed 
something necessary to the social order, as men are ; it fur- 
nishes means of defence against greater evils than itself is ; 
but in itself considered, it is an economic evil, because it 
takes away from exchangers a part of the gains of their 
exchanges ; it is not strictly, therefore, a part of economic 
science ; but its relations are, after all, so intimate with that 
science, that it must be treated as if it were a part of it. 
There are true principles of Taxation, as related to Ex- 
changes, although there never can be a true science of Tax- 
ation in the grand and positive sense in which there is a 
science of Exchanges Proper. 

Value resides in Services exchanged ; but, as men are, 
Government is an essential prerequisite to any general and 
satisfactory exchanges, since it contributes by direct effort 
to the security of person and property ; and justly claims, 
therefore, from each citizen a compensation ih return for the 
services thus rendered to him. We do not mean to say that 
government exists solely for the protection of person and 



582 POLITICAL ECONOMY. 

property, or that all the operations of government are to be 
brought down within the sphere of exchange, for government 
exists as well for the improvement as for the protection of 
society, and many of its high functions are moral, to be per- 
formed under a lofty sense of responsibility to God and to 
future ages ; nor do we mean to say that government has not 
also a deep ground for its existence, in virtue of which it 
may on extraordinary occasions demand all the property of 
all, and even the lives of some, of its citizens ; but we do 
mean to say that, whatever may be conceded as the ultimate 
ground of government, the matter of taxation, by which 
goverment is outwardly and ordinarily supported, and by 
which it takes to itself a part of the gains of every man's 
industry, finds a ready and solid justification in the common 
principles of exchange. If, as far as the tax-payer is con- 
cerned, the exchange does not seem to be voluntary, on a 
closer analysis it is seen to be really voluntary ; for in effect 
the people organize government for themselves, and volun- 
tarily support it, and there is no government separate from 
the will of the people. The practical rules of taxation at 
any rate, whether the fundamental reasons for- it or not, must 
always be found within the principles of our science ; and 
while it is admitted that here is another point of contact with 
.the regions beyond, all that really belongs to it must be vin- 
dicated for Political Economy. In a very important sense 
accordingly, a tax paid is a reward for a service rendered. 
The service which government renders to production by its 
laws, courts, and officers, by the force which it is at all times 
ready to exert in behalf of any citizen or the whole society 
when threatened with evil in person or property, is rendered 
somewhat on the principle of division of labor, one set of 
agents devoting themselves to that work ; and, notwithstand- 
ing some crying abuses of authority which no constitution or 
public virtue has yet been found adequate wholly to avert, 
is rendered on the whole economically and satisfactorily. 
Taxes, therefore, demanded of citizens by a lawful govern- 



TAXATION. 683 

merit which tolerably performs its functions, are legitimate 
and just on principles of exchange alone. 

1. What is the Source out of which taxes are actually 
paid? The answer is, out of the gains of exchanges of some 
sort. Gifts aside, and thefts which are out of the question, no 
man ever did, no man ever can, pay his taxes, except out of 
the gains of some sales which he has already made. Even 
the man who lives wholly on the interest of his money must 
make a true exchange in lending it (a credit transaction), 
and musl already have gotten his return-service in interest, 
before he can pay his taxes ; personal and professional ser- 
vants must receive their wages, the outcome of exchanges, 
before they can possibly pay their taxes ; and men can real- 
ize nothing for taxes or other payments from their farms or 
foundries or stocks in trade except as they sell either them 
or their products. The more sales, the more gains, and the 
greater reservoir wheuce taxes may be drawn. Political 
Economy, as the vindicator of sales, as the defender of all 
legitimate gains whatsoever, is the best possible friend of 
tax-payers and tax-gatherers as such. Whatever thought or 
force restricts sales, makes it pro tanto the harder to pay and 
collect taxes, so much the harder for a government to keep 
its head above water and reach the ends of its being. 

Green's History of England (I., 322 ct scq.) gives an 
outline of the taxes there from the beginning of the mon- 
archy. As land was almost the onl} T source of salable things 
in the early time, so it was almost the only thing on which 
taxes were levied. Danegeld and seutage and feudal aids 
fastened only on the land. " But a new principle of taxation 
was disclosed in the tithe levied for a Crusade at the close of 
Henry Second's reign. Land was no longer the only source 
of wealth. The growth of national prosperity, of trade and 
commerce, was creating a mass of personal property which 
offered irresistible temptations to the Angevin financiers. 
No usage fettered the Crown in dealing with personal prop- 
erty, and its growth iu value promised a growing revenue. 



584 POLITICAL ECONOMY. 

Grants of from a seventh to a thirtieth of movables, house* 
hold property, arid stock, were demanded. The right of the 
king to grant licenses to bring goods into or to trade within 
the realm, a right springing from the need of his protection 
felt by the strangers who came there for purposes of traffic, 
laid the foundation for our taxes on imports. Those on 
exports were only a part of the general system of taxing 
personal property. How tempting this source of revenue 
was proving, we see from a provision of the Great Charter, 
which forbids the levy of more than the ancient customs on 
merchants entering or leaving the realm. Commerce was in 
fact growing with the growing wealth of the people." This 
passage shows, that, as a matter of fact, taxes have always 
hinged, and must hinge, on trade. 

2. In what Measure or proportion ought citizens to con- 
tribute to the fund necessary to be raised by taxation ? The 
usual answer has been, that a man should be taxed accord- 
ing to his property. That is the radically correct answer, 
though most who have given it have not understood clear 'y 
the meaning of the word property. We have already se( 1 
that the ultimate idea of property is the power and right 1 » 
render services in exchange, and defined it as any tiling that 
can be bought and sold. Robinson Crusoe, while solitary 
upon his island, did not and could not have property, in the 
true sense of that word. It is not the fact of appropriation 
that makes any thing property ; it is not the fact that a man 
has made it or transformed it, that makes any thing prop- 
erty ; it is not the fact that a man may rightfully give it 
away, thai makes any thing property ; but it is the fact that 
a man has something, no matter what it is, for which some- 
thing else may be obtained in exchange, that makes that 
something property, and gives government the right to tax 
it. In other words, property consists in values, in a pur- 
chasing-power, and not in possession, or in appropriation, oi 
in the esteem in which a man holds any thing he has as long 
as it is his own. The test of property is a sale ; that which 



TAXATION. 585 

will bring something when exposed for exchange is property ; 
that which will bring nothing, either never was, or has now 
ceased to he, distinctively property. This view may not 
seem to be as novel as it is, or it may be prejudiced by its 
very novelty, but at any rate it carries along with it that 
strongest of the criteria of truth, that it simplifies and illu- 
mines a confused section of the field of human thinking ; 
and at the same time justifles a practice which governments 
have reached, as it were through instinct, the practice, 
namely, of taxing men who have neither real estate nor chat- 
tele, on their incomes from industry. 

To the general question, then, in what proportions shall 
the citizens contribute in taxes to the support of government, 
the general answer comes, that they ought to contribute in 
proportion to the gains of their exchanges, of whatever kind 
they may be. The farm, the foundry, the mill, the railroad, 
the real estate of every name ; personal property of every 
kind ; and personal acquirements and efforts of all descrip- 
tions, best appear, for the purposes of taxation, through the 
gains realized by means of them. If, for any reason, any of 
these become unproductive, taxes should cease to be derived 
from them ; indeed, must cease to be derived from them, 
because their owners can no longer pay by virtue of them. 
It may be objected, that lands, for example, presently un- 
productive, may be held untaxed under this principle, held 
for the sake of a prospective rise of price. Very well ; when 
they are sold at a profit, let the owner be taxed on that 
profit : it will be time enough then, especially as men do not 
like to hold unproductive forms of property. It ma} T also be 
objected, that, under this principle, wages, the result of per- 
sonal and professional exertion, would be taxed just the 
same as profits and rents, the result of previously accumu- 
lated property. Very well ; they ought to be so taxed. Can 
anybody give a solid reason why they ought not to be so 
taxed? One may say, that a professional man earning a 
large income, on which taxes arc paid the same as on a sunt* 



586 POLITICAL ECONOMY. 

lar income of a land-proprietor, dying, leaves to his children 
no further means of earning, while the land- proprietor, dying, 
does leave such means. Granted ; but the land income con- 
tinues to pay taxes, while that professional income does not ! 
Other members of the profession will do the business which 
the former one would have done had he lived, and they will 
pay taxes on the income from it. What a man transmits to 
his children, whether a great name or a great estate, has 
nothing to do with the amount of taxes that he ought to pay 
while he lives. There is an illusion about land and realized 
property that needs to be dissipated before men will under- 
stand clearly the whole matter of taxation. Without con- 
stant watchfulness and foresight, without constant efforts in 
improvements and repairs, almost every form of realized 
property will rapidly deteriorate and become .unproductive. 
Land even in Great Britain, where land is scarce, is onlj 
worth about twenty-five years' rent ; and without the exer 
cise of intelligence and will property ceases to be. Property 
has its birth in services exchanged; services exchanged give 
rise to gains; taxes can only be paid out of these gains; they 
ought to be proportioned to tliu amount of these gains without 
any reference to the class of exchanges producing them ; while 
the right to tax on the part of the government is connected with 
a service rendered by government, and both grows out of and 
is limited by the right to exchange on the part of the citizens. 
These considerations, though they may exclude the propriety 
of a poll-tax, are consistent with most other forms of taxa- 
tion, and give unity to them. 

3. It follows plainly from these principles that an Income 
Tax, if the exact amount of income could in all cases be 
ascertained, and if no other form of tax were levied, would 
be a perfectly unexceptionable form of taxation. The only 
sources of income are three : wages, profits, rents. It does 
not seem that gifts are legitimately taxable ; they lie out- 
side the field of exchange ; they spring from sympathy, from 
benevolence, from duty ; and while exchange must claim all 



TAXATION. 587 

that fairly belongs to it, it must be careful not to throw dis- 
couragements into the adjacent but distinct held of morals 
Hence, it may well be questioned whether legacies, bequeathe 
ments, gifts to charitable and educational institutions, and 
gifts to individuals proceeding from friendship, gratitude, or 
other such impulse, are properly subject to taxation. The 
property is taxable in the hands of the donor, and may be in 
the hands of the recipient, but the passage from one to the 
other ought to be unobstructed by a tax. Gifts then ex- 
cepted, and plunder, which is out of the question, the sources 
of income are few and simple, and there is no great difficulty 
in eveiy man ascertaining about what his annual income is. 
Because this income, exactly ascertained, exactly measures 
the gains of his exchanges for that year, a tax upon that 
income is the fairest of all possible forms of taxation, and 
might be made with advantage, in time, to supersede all 
other forms. The late national income tax was new in this 
country, and for certain reasons not inherent in the nature 
of the tax became unpopular in influential quarters, and was 
discontinued ; but the English have found their income tax 
to be for more than thirty years the most uniform, unfailing, 
expansive, and responsive to control of all their fiscal expe- 
dients. Their rate has varied from two to sixteen pence to 
the pound of income. In 1857, it realized $80, 255, 000. In 
I860, our own national income tax realized $60,894,135. 
The Germans, too, are now applying an income tax as one 
of their sources of revenue. 

Besides the complete harmony of an income tax with the 
general principles of taxation, as already unfolded, it has a 
grand advantage over all other forms of taxation in that it 
has no tendency to disturb prices. Were there no taxation 
except on incomes, and were the incomes rightly rendered, 
tne prices of every thing would be just as if there were no 
taxes. Taxation would then be like the atmosphere, press- 
ing equally or all points and consciously on none. It is 
through tricks wrought 'on prices that the greatest injustice 



588 POLITICAL ECONOMY. 

is done and suffered in this country at present ; a depreci- 
ated paper money, for example, raises some prices and not 
others, and some prices before others, and thus distributes 
its mischiefs unequally; the "protective" tariff- taxes play 
fantastic tricks with prices, raising some and depressing 
others, thus working monstrous injustice on a great scale ; 
and almost all forms of taxation become unequal and unjust 
through their diverse action on prices. But a universal in- 
come tax, properly levied and fully responded to by the pay- 
ers, would have no influence at all upon prices, could by no 
possibility work essential injustice, and would be certain to 
be very productive. 

Another great advantage of an income tax in such a coun- 
try as this would be, that all men would keep accounts, more 
orderly methods of business -would prevail, men would know 
better where they stand themselves and whom of others to 
trust, failures would be less frequent, and every thing would 
be more known and above-board. 

In this country, where taxes have to be paid, first to the 
local municipality, then to the state, and last to the nation, 
income taxes, were all others abolished, would have this 
immense advantage, that the municipality might ascertain 
the incomes once for all, the state and the nation merely col- 
lecting an additional per cent for themselves ; or better still, 
by amicable arrangement, neither party yielding its inherent 
right to lax, one set of officials might ascertain and collect 
the tax for all three governments once for all. An objection 
has been raised from the publicity resulting from an income 
tax. This is no objection at all, inasmuch as every man has 
a right to know that his neighbors are contributing to support 
the government pro rata with himself. In bearing up the 
burden of government all citizens are copartners, and in this 
view each has a right to demand a look into the books of the 
others. Another objection has been raised, that men will 
not give iu a true return of their income. Ah ! but they can 
be made to do so, as the forms are'perfected, as fraudulent 



TAXATION. 589 

returns are promptly punished by additional assessment and 
collection, and as the memory and conscience of the payers 
are quickened by the action of a healthful public opinion 
brought to bear through the annual publication of the list of 
their returns. Men are not so isolated from each other as 
that a man's neighbors do not know pretty well the general 
amount of his income. There is the additional security of 
an oath, of the fear of punishment, and of the wish to stand 
well with one's class. At the worst, it may be said, that 
evasions and fraud accompany also all other forms of taxa- 
tion. No fair experiment has yet been made in this country 
with an income tax ; special reasons made the late law ob- 
noxious ; but if the system were permanently established in 
lieu of all others, the practical difficulties under it would grow 
less and less every year. It may be long before we shall 
ever come to this ; but the truth remains that income taxes 
are the justest of taxes. 

4. Taxes are commonly and properly divided into two 
classes, namely, Direct and Indirect Taxes. A direct tax 
is levied on the very persons who are expected themselves to 
pay it ; an indirect tax is demanded from one person in the 
expectation that he will pay it provisionally, but will indem- 
nify himself in the higher price which he will receive from 
the ultimate consumer. Thus an income tax is direct, while 
duties laid on imported goods are indirect. There has been 
a great amount of discussion on the point whether direct or 
indirect taxation be the more eligible form ; but the reader 
of penetration will perceive that there is not at bottom any 
very radical difference between them ; each is alike a tax on 
actual or possible exchanges, with this main difference, that 
men pay indirect taxes as a part of the price of the goods 
they buy, without thinking perhaps that it is a tax they are 
paying, and consequently without any of the repugnance that 
is sometimes felt towards a tax-gatherer who comes with an 
unwelcome demand. Thus indirect taxes are conveniently 
»nd economically collected. Especially is this true of impost 



590 POLITICAL ECONOMY. 

duties ; since one set of custom-house officers collect easily 
and at once the government tax which is ultimately paid by 
consumers all over the country. The taxes levied by the 
present United States internal revenue law are indirect taxes, 
whereby the government gets in a lump what is afterwards 
distributed over many subordinate exchanges. The counter- 
vailing disadvantage of indirect taxation, however, is, that 
the price of the commodity is usually enhanced to an extent 
much beyond the amount of the tax, partly because it is a 
cover under which dealers may put an unreasonable demand, 
aud partly because the tax, having to be advanced over and 
over again by the intermediate dealers, profits rapidly accu- 
mulate as an element of the price. 

Direct taxes are laid either on income or expenditure. As 
the difficulty of a tax on a person's whole expenditure is 
much greater than one on his whole income, inasmuch as the 
items are more numerous and more diffused, it is only at- 
tempted to levy a few taxes on some special items of expen- 
diture, such as those on horses, carriages, plates, watches, 
and so on ; but as these do not reach all persons with any 
degree of equality, they are so far forth objectionable. A 
house-tax, levied on the occupier, and not on the owner 
unless he be at the same time the occupier, would be a direct 
tax on expenditure every way unobjectionable. 1 Taking 
society at large, the house a man lives in and its furniture 
are probably the most accurate index attainable of the size 
of his general expenditures. They are open to observation 
and current remark ; they are that on which persc/ns rely 
more perhaps than on an}' thing else external for their con- 
sideration and station in life ; the tax could be assessed with 
very little trouble on the part of the assessor ; and it is well 
worthy the attention of our national legislature, whether such 
a tax, if more taxes should be needed, would not be more 
equal and more easy of collection than any others now open ; 
or whether it might not with advantage take the place of 

1 Mill, chip, iii., book 5. 



TAXATION. 591 

some of the complicated and objectionable taxes now laid. 
Direct taxes have this general advantage oxer indirect, thai 
they bring the people into more immediate contact with the 
government that lays the taxes, and subject it to a quicker 
supervision and more effectual curb, whenever its expendi- 
tures grow larger than the people think it desirable to incur; 
they have this general disadvantage over indirect taxes, espe- 
cially over imposts, that. the number of officials required to 
assess and collect them is much larger, thus swallowing up 
a part of the proceeds of the taxes, with this liability also 
of bringing the people into an attitude of hostility to the gov- 
ernment and to its contemplated expenditures. But whether 
the taxes be direct or indirect, or whatever be their form, 
except it be a poll-tax, which is questionable at best, they 
are laid upon exchanges, and are designed to withdraw for 
the use of the government a part of the gains of exchanges. 
5. There is every opportunity in this country to try experi- 
ments in taxation, and to reach through experience the best 
modes, since the states establish their own systems inde- 
pendently of any national action. There is consequently 
great diversity of methods in different localities and under 
the different governments. The nation raises its revenue 
mainly through a tariff, subordinately through an excise, 
both indirect taxation. Most of the states raise their reve- 
nue by direct taxes upon land or other property, though 
Pennsylvania has recently tried with gratifying results the 
expedient of an indirect tax on corporations in lieu of her 
former direct taxes. It may possibly be, considering the 
complex character of our government — the wheels within 
the wheel — that a combination of different taxes, indirect 
for the nation and direct for the states, may reach a rough 
result of justice. But in order that it ma}' do this even ap- 
proximately, there must be more simplicity id each method, 
and a more studied harmony between them, than has been 
hitherto attempted. Taxes must be seen to be taxes, and 
viewed with a comprehensive reference to other taxes falling 



592 POLITICAL ECONOMY. 

upon the same persons, before any thing like a system of 
taxation can exist for the United States. 

The aggregate customs revenue of the United States for 
the five fiscal years, 1877-81, was $792,222,909, and the 
direct cost of the collection of this sum was $30,228,113, or 
3.81%. We have already seen sufficiently in the chapter on 
Foreign Trade the radical objections to raising a revenue by 
such a tariff as that, under which this vast sum was gathered 
iD jve years; namely, (1) the people were made to pay 
under this form of taxation a manifold vaster sum than this, 
of which the Treasury did not receive one single cent, which 
is a monstrous abuse of the taxing power ; (2) the most 
stinging injustice was wrought between man and man and 
class and class, by artificially raising the prices of some prod- 
ucts and depressing the prices of other products through 
the designed action and reaction of such a tariff, which is a 
monstrous abuse of the general governing power. The In- 
ternal Revenue of the United States for the six fiscal years, 
1877-82, was very nearly $718,000,000, and the direct cost 
of collection was 3.51%. In utter contrast with the tariff- 
taxes, the internal revenue taxes are laid on a very few arti- 
cles, in a very simple way, with a single view to get money 
into the Treasury ; and as a beautiful consequence, the re- 
ceipts increased from $113,000,000 in 1879 to $123,000,000 
in 1880, $135,000,000 in 1881, and $146,000,000 in 1882. 
The great bulk of these immense sums was derived from 
three sources, namely, distilled spirits, malt liquors, and 
cigars. The only other subjects of excise taxes, which 
yielded in the aggregate less than $19,000,000 in 1882, were 
matches, patent medicines, and banks. Compared with the 
tariff, the excise is simplicity itself ; and if the tariff were 
simplified on the same principle, with the same end in view, 
taxing not over a dozen articles, little would be left to be 
desired in the tax-system of the United States. Probably a 
simple and exclusive income tax would be better even than 
this 



TAXATION. 593 

Groat difficulties lie iu the way of harmonizing the tax- 
Bystema of the states with any existing or immediately pro- 
spective taxing-system of the Nation. Vermont has a new 
system under which she is trying to get taxes from her citi- 
zens on commodities wherever situated and on credits wher- 
ever deposited. Unavoidable frictions arise here, because it 
may lie claimed that parts of the property are in other States 
and taxed there, or at least are not protected by the law of 
Vermont, and ought not therefore to be taxed under it. For 
example, parties depositing bonds and valuables in safes in 
New York, might claim that they were out of the jurisdiction 
of Vermont, and if stolen, officials of that State would not 
be called on to lift a linger. An exclusive income tax would 
obviate all difficulties of this sort, because a man would pay 
his tax where his domicile is, no matter what the kind or 
place of his property. 

6. If direct taxes, other than an income tax, be levied, it 
is very clear that credits arc a legitimate subject of taxation. 
Whatever is bought and sold is properly enough taxed, if 
the needs of the government require it, and if such taxation 
would be productive and not too unequal. As values always 
spring from the action of individuals, so the incidence of 
taxes is upon persons rather than upon things ; and the ques- 
tion is what can a man sell, or what has he already sold, on 
the gains of which sale the government may lay some claim? 
If I have a mortgage on my neighbor's farm, I can sell it 
at any time to a third party ; it pays me interest ad iuh rim, 
and I can collect it at maturity. Government therefore 
properly taxes me for that credit in my possession. It is a 
part of my property- The holders of the government bonds 
CCCQpy an economical position exactly similar. They have 
a lien on the national property and income. The credits 
they hold arc vendible commodities. They are a paper 
bearing interest. They can be collected at maturity. They 
are indeed exempted by law from municipal and State taxa- 
tion. That was a legit mate inducement held out to every- 



594 POLITICAL ECONOMY. 

body alike to invest in the bonds. But there is no reason 
why the nation, having withdrawn them from town and State 
taxation, should not itself all the more subject them to their 
fair share of the national burdens, unless indeed it be 
claimed, as perhaps it fairly may be, that the exemption 
enables the government to borrow at a just so much lower 
rate of interest. The income at any rate derived from the 
bonis should be taxed as soon as any other income is. It 
is no longer any ground of merit, even if it ever has been, 
for persons to buy the government debt. It is a mercantile 
transaction, and should be so considered in relation to taxes. 
So of other mercantile credits. They are taxable. 

Massachusetts has had a great deal of trouble of late 
years both in the Legislature and otherwise about the taxa- 
tion of mortgages on taxed Massachusetts farms and other 
real estate. The question is intricate and full of difficulty. 
Some things about it, however, are clear. The mortgage is 
a different piece of property, and a different kind of property, 
from the real estate. It is a peculiar sort of credit. The 
owner of it is a different person from the owner of the real 
estate. Either bit of property may change hands without 
changing the status of the other. The question of taxing the 
mortgage, like the question of taxing the bonds, seems to 
hinge on the effect it would have on the rate of interest of 
the obligation secured by the mortgage. If the holder of the 
mortgage expects to have" to pay a tax upon it, he will try to 
get a higher rate of interest on his money loaned and thus 
secured. Whether mortgagees taxed as such can throw off 
the tax upon the mortgagors in a higher rate of interest on 
the money loaned is a point much disputed and at least 
doubtfuL General principles would lead us to favor the 
taxation of mortgages in the hands of their holders, so long 
as such cumbersome forms of taxing as prevail in Massachu- 
setts are maintained. A universal income tax would solve 
this difficulty also in a moment of time. 

7. Taxes in general, in order to be most productive in the 



TAXATION. 50;") 

long rim, as well as discourage :is little as possible the ex- 
changes which would otherwise go forward, ought to be low 
relatively to the amount of values exchangeable. A high 
tax not infrequently stops exchanges in the taxed articles 
altogether, and of course the tax then realizes nothing to 
the government. As the only motive to an exchange is 
the gain of it, the exchange ceases whenever the govern- 
ment cuts so deeply into the gain as to leave little margin 
to the exchangers. The greater the gain left to the parties, 
after the tax is abstracted, the more numerous will the ex- 
changes become, and the greater the number of times will 
the tax fall into the coffers of the government. In almost all 
articles, consumption increases from a lowered pi ice in even 
a greater ratio than the diminution of the rate of tax ; so that 
the interests of consumers and of the revenue are not antag- 
onistic but harmonious. On articles of luxury and ostenta- 
tion, and on those, such as liquors and tobaccos, whose moral 
effects are clearly questionable, very high taxes may properly 
enough be laid, because their incidence will hardly tend to 
diminish consumption, and it would scarcely be to be re- 
gretted if it did ; but with this exception, duties and taxes 
should be levied at a low rate per cent, as well for the in- 
terest of revenue as of consumers. It is to be added, how- 
ever, that the taxes even on these articles may be too high 
to meet either a revenue or a moral purpose. The internal 
tax of two dollars a gallon upon distilled spirits was of this 
character. Experience has demonstrated that a less t ix 
wdl produce more revenue, and the drinking of whiskey, bad 
as that is, is less culpable than the endless frauds on thfl 
government provoked by the high tax. 

8. Duties and taxes should be simple, and their amount 
easily calculable by the payer beforehand. The COmpli 
of specific with ad valorem duties is a decided objection to 
the present tariff. The hitter is a duty of so much per cent 
on the invoiced or appraised value of the goods: the formei 
is a duty of so many cents or dollars on the pound, 3:1 id, 



596 POLITICAL ECONOMY. 

gallon, or other quantity. There are too many practical diffi- 
culties connected with either form of duty to make it proper 
to combine the two upon the same article. To combine them 
thus is one of the devices of protection. On the whole, spe- 
cific duties are preferable to ad valorem because they give 
less chance to frauds, and because importers, and others, can 
make their calculations easier on the basis of them. To be 
sure, this involves that high-priced grades of an article pay 
no higher tax than low-priced grades of the same ; but this 
consideration is largely overbalanced by those of convenience 
f.nd productiveness. So far as is possible, taxes should be 
levied upon commodities once for all, and then an end. The 
opposite principle of taxing commodities every time they 
change hands throws an indefinite burden on exchange, 
whose weight cannot well be calculated beforehand, either 
by the consumer or by the government, through uncertainty 
as to the number of transfers. Exchanges indeed are the 
only legitimate subject of taxation, but not every specific 
and subordinate exchange. An attempt to tax all sales what- 
ever was followed in Spain, and will be followed everywhere, 
by a sluggish indisposition to trade at all. Let the amount 
of the tax be definite, and let everybody be sure that when 
it is once paid government will produce no further claim, 
and industry will go along under heavy taxes better than 
under those nominally lighter to which uncertainty as to 
time or amount attaches. All the more advanced govern- 
ments have been simplifying of late years their systems of 
taxation, and collecting their revenue at fewer points, and 
under more tangible conditions, in order to interfere as little 
as possible with a free industry and free exchange. Eng- 
land, for instance, has given up a great variety of taxes, and 
now collects her revenue of about £70,000,000 a year, from 
customs £20,000,000, from excise £25,000,000, from stamps 
£10,000,000, from taxes (mostly on incomes) £9,000,000, 
and from Post Office £6,000,000. The annual average net 
income from these few sources has been for many years 



TAXATION. 507 

Just about £64,000,000, of which the iucome tax yields 
£6,000,000. 

9. The bottom-principle of taxation is this, relatively low 
taxes so adjusted on comparatively few things as not to dis- 
turb natural pr ices. The principle is simple : the problem is 
difficult ; but wonderfully less so, the moment all attempts 
are given up to foster any branch of industry whatever. 
Our legislators are not called upon to foster any industries. 
They cannot permanently do it, if they try ; and they do im- 
mense harm, while they try. Their duties would be easier, 
and better performed, if they looked solely to the best meth- 
ods of raising money in such a way as shall least interfere 
with what would otherwise be the ongoing of exchanges in 
all directions. Duties that prevent importations, and the 
consequent exportation of domestic products in return ; aud 
duties whose direct effect is to raise the price of other arti- 
cles than those on which they are levied ; are objectionable, 
and, for the most part, can be dispensed with. In case 
duties are laid on articles, as spirits, which are also produced 
at home, there should be an excise on the home product 
equivalent to the tariff-tax on the foreign, otherwise the peo- 
ple will pay more in consequence of the tax than government 
will get. This subsidiary principle is important, as is also 
the principle that taxes and duties should be collected by the 
government in as economical a manner as possible, that is to 
say, the money should be kept out of the pockets of the peo- 
ple as short a time as possible, disbursement following quick 
upon collection. It is poor policy to gather taxes at the 
beginning of the year which will not be disbursed till the end 
of the year. Let the people use their funds till they are 
wanted at the treasury ; aud if the taxes do not then come 
in as fast as wanted, it is better to issue what are called in 
England exchequer-bills, and in the United States certificate! 
of indebtedness, to be redeemed at the end of the year from 
the proceeds of the taxes, than to let the people's money lia 
idle in the treasury. 



598 POLITICAL ECONOMY. 

10. If the necessities of the State require it, government 
has the right to demand from all persons who are capable 
of making exchanges, and who do make them, something in 
the form of taxes. But it is every way better, when possi- 
ble, that people of very moderate means should be exempted 
altogether from direct taxes ; and the payment of indirect 
taxes is a matter more in their own option, since they are 
at liberty to buy much or little of those commodities sub- 
jected to an indirect tax. In the State of Massachusetts, 
incomes not exceeding $2,000 are exempted by the law. If 
a house-tax should be levied, all houses below a certaho 
grade of style and comfort should be exempted, and the tax 
pass up by easy gradations from those just taxed to the pala- 
tial residences of the rich. In the present age of the world, 
the well-to-do citizens of every country are able to bear with- 
out too great difficulty the burdens of the government, and 
nothing tests better the degree of civilization which a nation 
has reached than the care and solicitude it displays for the 
welfare of its poorer citizens. Bismarck has recently acted 
on this principle in Prussia, where there is a graduated in- 
come tax, the lowest class of persons subject to which must 
have at least an income of 420 marks a year ; all persons 
having a less income than that are wholly exempt from the 
tax ; those having between 420 and 660 marks a year pay 
84 pennies as income tax ; persons in the next higher class 
pay 164 pennies a year ; those in the class whose maximum 
income is 6,000 marks pay 44 marks and 80 pennies a 
year ; and lately on account of hard times, the Chancellor 
proposed that all the classes included between 420 and 6,000 
marks of income should be wholly exempted from one quar- 
ter's taxes. 

11. At a court ball, Napoleon the First once observed a 
lady noticeable as rich y dressed and as wearing splendid dia- 
monds, and on asking her name, found that she was the wife 
of a tobacco manufacturer of Paris ; it occurred at once to the 
quick mind of the French ruler, that the State might just 



TAXATION. 599 

us well have those profits as an individual ; and the sale of 
tobacco in all its forms became accordingly a State monop- 
oly, which now yields about 400,000,000 francs a year. 
That is indirect taxation. So is the British and United 
States tariff and excise on tobacco. This leads to the ques- 
tion, who pays an indirect tax? Can the producer throw it 
wholly upon the consumer? Can the banks, for example, 
throw their taxes wholly upon their customers? Producers 
and dealers and bankers and companies add the tax demand- 
ed from them, and sometimes more than the tax under color 
of it, to the price of their wares. But it is not true that they 
can always realize the whole of this enhanced price. Gen- 
erally they can, sometimes they cannot. If the article be 
one of necessity, or a luxury that has become equivalent to a 
necessity, and there be no other source of supply than the 
taxed one, then, as a rule, the tax falls wholly on the con- 
sumer, and is a matter of indifference to the producer or 
dealer. But the usual effect of an enhanced price is to les- 
sen demand, and if the article is dispensable, or its consump- 
tion can be lessened, or it can be obtained elsewhere, the 
market will be sluggish under the tax, and producers 01 
dealers will be likely to tempt it by lowering prices, in othei 
words, by sharing the tax with consumers, and paying that 
share out of profits. This is the principle. Producers and 
dealers would rather the tax were off. Consumers generally, 
but do not always, pay the whole of it. 

12. Much has been written, and very little is known, about 
the tendency of taxes to diffuse themselves. By this is 
meant, that it does not make so much difference upon what 
or upon whom a tax is originally levied, because the ten- 
dency of things is to diffuse it, that is, to compel others to 
assist in paying the tax. The result of much personal read- 
ing and reflection on this point is the conclusion that taxes 
do not "diffuse themselves" nearly so much as lias been 
sometimes supposed ; and that, at any rate, it is a good deal 
better to take the taxes from those who ought to pay them, 



600 POLITICAL ECONOMY. 

than to lay them at random, and then to trust some unknown 
forces to make them afterwards just. It is certain that some 
unjust taxes cannot he diffused ; for example, the protective 
tariff-taxes paid by the farmers upon articles of necessary 
consumption. These taxes have no tendency to raise the 
price of the farmers' produce, for that is determined by the 
foreign market, to which large parts of the produce are ex- 
ported. For such taxes the farmers cannot reimburse them- 
selves. Taxes that affect no prices are the best of all; 
taxes that affect prices the least are the next best ; and taxea 
that are designed to affect prices are the very worst. 

A concise restatement of some of the points of this chap- 
ter will make our last summary, and conclude the volume. 

1. Political Economy is strictly a Science, while levying 
taxes is an Art based on economical truths. 

2. Much so-called taxation is designed to impede exchanges 
and exalt certain prices. 

3. An abuse of the governmental right to tax is the very 
core of lorong-doing . 

4. The sole source of riches and taxes is trade. 

5. If a government restricts trade, it dries up so far forth 
its own well-springs. 

6. Citizens have an inalienable right to know just how, how 
much, ivhat for, and whether in even proportion with others, 
they pay taxes. 

7. Governments that deal fairly and openly and honestly 
with their citizens in taxation will find their account in full 
treasuries and a common good-will. 



INDEX. 



A. 

Abominations Tariff, 5." 7. 

Abraham, 6. 

Abstinence, 282. 

Acban, 4. 

Act of Parliament, 192 

Advantages of credit, < 50. 

Africa, 325. 

Airicanns, 18. 

" Against and in favor," 439. 

Agreeableness of laboi , 215. 

Agricultural school, 45. 

Agriculture, 43, 498. 

Aims and ends, 249. 

Albany Evening Journal, 499. 

Alexander the Great, 327. 

Alley, John B., 505. 

All Sales School, 72. 

Alsace and Lorraine, 34. 

American flag, 198. 

Ames, Fisher, 699, 542. 

Amount of production, 172. 

Amsterdam, 307. 

Analyses of the cost of capital, 307. 

Analyses of the cost of labor, 307. 

Analytics, LOO. 

Anglophobia, 507. 

Anglo-Saxons, 58. 

" Annual produce of land and labor," 96. 

Annuilics, 426. 

Antoine de Montchrestien, 40. 

Antwerp, 58. 

Apple-tree blossoms, 93. 

Archangel, 60. 

Archbishop l.anfranc, 25. 

Archbishop Theodore, 25. 

Archipelago, 8. 

Aristophanes, 351. 

Aristotelian logic, 94. 

Aristotle, 12, 34, Go, 295. 

Arthur, President, 514. 

Artificial high prices, 526. 

Artisans, wages of, 311. 

Asia, proconsular, 24. 

AieLgnate, 858, 366. 

lation, 17". 
Athelatane, King, 25. 
Athens, 9, 16. 
Atkinson, Kdward, I>6. 
Axioms in reasoning 03 



B. 

Babylonia, 2. 

Bacon, 50. 

Bacon, his method of reasoning, 91. 

Bailee, 415. 

Baird, H. C, 518. 

Baker, illustration of, 330. 

Balance of trade, 478. 

Baldwin of Pennsylvania, 551. 

Ball, John, 224. 

Bancroft, George, 535. 

Bank bills, 424. 

Bankers' bills, 440. 

Bank of England, 360, 363, 375, 425. 

Bank of Massachusetts, 396. 

Bank of New York, 396. 

Banks, 425. 

Banks defined, 427. 

Barter, 315, 318. 

Bascom, Preface, 81, 101, 114. 

Bastiat, Preface, 53, 93, 131, 285, 334. 

Bayonne, 53. 

Beauty of money, 346. 

Beccaria, 73. 

Beck, Senator, 485. 

Bentnam, Jeremy, 101. 

Benton, Preface, 537, 550, 562. 

Bessemer Steel Company, 485. 

Biddle, Nicholas, 400. 

Bit >is, 52, 170. 

Bills of exchange, 432. 

Biscuit, 122. 

Bismarck, 598. 

Black death, 223. 

Blackstone, 128. 

Blades of the shears, 267. 

Blaine, Secretary, 579. 

Bliss, Dr., 106. 

Boccardo, 74, 81. 

Body in its pregnant sense, 89. 

Bohemia, 890. 

Bois-Guillebert, 44, 62. 

Bolles, Preface. 

Bonds, 423. 

Book accounts, 421. 

Book of Trades, 33. 

Borrow, 117. 

Boston, 578. 

Bottom-principle of taxatloD, 600. 

Boudinot, Elias, 392. 

601 



602 



INDEX. 



Bo wen, Preface, 81. 

Bowls, 140. 

Brazil, 134. 

Bricklayers, 499. 

Bright, John, 298, 495. 

British bread, 58. 

British counterfeiters, 385. 

British hours, 498. 

British Islands, 293. 

Bronson, 379. 

Bruges, 28. 

Brunswick, 29. 

Buchanan, President, 373. 

Buckle, 65. 

Bullion, 337. 

Bullion theory, 23. 

Bundesrath, 75. 

Bunker Hill, 382. 

Bunting, 489. 

Burchard, 340. 

Burden of national debts, 459. 

Burke of South Carolina, 541. 

Button factory, 506. 

Buying and selling, 1, 487. 



Caesar, 111, 410. 

Caird, 265. 

Cairns, 72. 

Calhoun, 547, 557, 560. 

Calhoun Tariff, 545. 

Canal de Briar e, 39. 

Canfield, Professor, 85. 

Cape of Good Hope, 31. 

Capital, 47, 203, 206, 248, 251. 

Capital defined, 252. 

Capitularies, 32. 

Cardinal Mazarin, 41. 

Carey, H. C, Preface, 81, 82, 154, 253, 265, 

279, 285, 519. 
Carlyle, 367. 
Carthage, 7. 
Cases of value, 127. 
" Cash credits," 418, 448. 
Categories of valuable thinsrs, 300. 
Cato, 18, 19. 
Cattle and chattels, 252. 
Census, 222, 230, 525. 
Cent, 3S9. 

Cents and pencil, 123. 
Certificates of stocks, 423. 
Chaldea, 2. 
Chalmers, 184. 
Chapin, A. L., 81, 85. 
Charlemagne, 29, 32. 
Charles IX., 39. 
Charles O'Connor, 211. 
Charles the Bold, 134. 
Charles V., 37. 
Chase, Secretary, 404, 407. 
" Cheap goods," 509. 
Cheap-side, 28. 
Cheque-books, 446. 
Cheques, 442. 

Chevalier, Preface, 55, 72, 339. 
Cheves, Langdon, 400. 
Chicago five, 527, 570. 



Chief Justice Supreme Court, 208. 

Chinese, 31, 245. 

Chrematistics, 12, 15. 

Christianity, 25. 

Christlieb, Dr., of Bonn, 20. 

Cicero, 3, 17, 23, 260, 442. 

Circular letters of credit, 447. 

Circulating capital, 263. 

Circulation, rapidity of, 321. 

Classes of facts, 90. 

Clay, Henry, 508, 551. 

Clearing-house, 174, 444. 

Cleon, 351. 

Cleopatra's Keedle, 199. 

Clients, 22. 

Clymer of Pennsylvania, 541. 

Coasting trade, 200, 523. 

Code of Justinian, 20. 

Coffee, 482. 

Coinage, international, 354. 

Coins, 4. 

Colbert, 40, 46, 57. 

Cologne, 29. 

Colonies, 78, 377. 

Colwell, 83. 

Commercial bills, 440. 

Commodatum, 416. 

Commodities, 281, 413. 

Common labor, 204. 

Common sense in economics, 463. . 

Communes, 33. 

Communism, 54. 

Company of the Indies, 366. 

" Compete," 472. 

Compromise Tariff, 560. 

Conciliation with America, 504. 

Condillac, Preface, 51, 63, 150. 

Conditions of production, 177. 

Congress of German- economists, 75. 

Connecticut, 381, 382, 389. 

Conrad, 77. 

Consols, 424. 

Constancy of labor, 217. 

Constantinople, 24, 29. 

Constitution, United States, 78, 370, i61, 

Consumption, 167. 

Continental Congress, 382, 535. 

Co-operation, 245. 

Copper, 272. 

Copyrights, 194. . 

Cordova, 27. 

" Corners," 162. 

Corn-laws, 291. 

Cornwall, 9, 59. 

Cossa, 74. 

Cost of capital, 304. 

Cost of carriage, 475. 

Cost of labor, 304. 

Cost of production, 300. 

Cotton, 59. 

Cotton ties, 507. 

Cottons and silks, 465. 

Cowry shells, 326. 

Credit, 97. 

Credit-claims, 125. 

Credit fonder, 56. 

Cremona, 207. 

Croesus, 279. 

Crossed cheques, 446. 



INDEX. 



603 



Crusades, 80, BL 
Crusoe, liobinson, 08, 584. 
Currey, M. d., 507. 
Onatom, 220. 

Customs revenue, B 12. 
Cycle of labor, '244. 
Cyrus, the younger, 9. 



D. 

Dallas, Secretary, 399, 545 

Damascus, 5. 

Damask, 30. 

Dana, C. A., Preface. 

Dantzic, 29. 

Dawes, .Senator, 532. 

Debt, 334. 

Decimal system, 3. 

Decimetre, 395. 

Deduction, 91, 101. 

Demand and supply, 158, 214. 

Democrats, 5:J2. 

Denarius, 18. 

Denomination dollar, 331. 

Deposits 

Descartes, 92. 

Desires, 124, 133. 

Ig, 2O0. 
Diffusion of taxes, 599. 
Digest, The Roman, 20. 
Diman, Professor, m. 
Dimes and dollars, 389. 
Diminishing returns, 286. 
Direct and indirect taxes, 589. 
Director of the mint, 34<8. 
Disadvantages of credit, 455. 
Discounts, 429. 

Diversity of advantage, 173, 467. 
Divisibility cf money, :U7. 
Division of labor, 186, 189. 
Doctrine of rent, 2 
Doge of Venice, 31, 34. 
Dollar, 333, 390. 
Dollar-bill, 367. 
Domes-day book, 297. 
Dorsetshire laborer, 222. 
Double standard, 335, 394. 
Duke of Northumberland, 297. 
Duke of Orleans, :;ii">. 
Dunbar, Professor, 84. 
Duodecimal system, 3. 
Durable machinery, 311. 
Dutch capital, 308. 
Dutch goods, 43. 
Duties and taxes, 595. 
Duties on imports, 16. 
Duty, 108. 
Duty on wool, oil. 



Easiness of labor, 216. 
Bastei lings, 80. 

Bast India Company, 193. 
Past Indies, 326. 
Economics, 12, 94. 
Edict of Nantes, 37. 



Efforts, 124, 133. 

Eglbi .v Co., 442. 

Elder, William, 82, 83. 

Eliot, historian, 540. 

Elisabeth, Queen, 58, 192. 

Elliot, E. B., 81, 866. 

English re-coinage, 352. 

English taxes, 596. 

Kphron, 5. 

Eryxias, 16. 

Ethical science, 108. 

Ethics, 12, 94. 

Etymology of credit, 414. 

Euphrates, 2. 

Euripides, 234. 

Evans, Secretary, 104, 200, 579. 

Exact sciences, 04. 

Exchange, 120. 

" Exchange," 434. 

Exchanges proper, 581. 

Exchequer, 861. 

Exchequer bills, 598. 

Experiments in taxation, 591. 



Fallacies of protection, 487. 

Fallacy of composition, 499. 

Paneuil Hall, 402. 

Fashion, 220. 

Faucet t, Professor, 222. 

Pee simple, 293. 

Feigned cases, 103. 

Fenelon, 56. 

Fcrrara, 74. 

Feudalism, 25, 27. 

Weld, Judge, 408. 

First class of employers, 226. 

Flanders, 26. 

Flax fabrics, 261. 

Florence, 31. 

Flour product, 117. 

FlOUr war, 4','. 

Fluency of money, 341. 

Foot, 3. 

Foote of Vermont, 551. 

Foreign bills of exchange, 435. 

Foreign trade, its principles, 470. 

Forms of capital, 263. 

France, 25, 56. 

France and England, 296. 

Francs, 359. 

Franklin, 92, 295,380. 

" Free banking system," 401 

" Free breakfast-table," 570. 

Freedom, 179. 

Freeholds, 295. 

Free list, 511. 

Free trade, 498, 500. 

French-Canadian laborers, 228. 

French revolution, 862. 

French seigniorage, 346. 

French aUvei , 

French wine, 298. 

Frere, Sir Bail 

Fruitage of protection, 522. 

Fi ye, Senator, 488. 

Funds, 42.3. 



604 



INDEX. 



G. 

Galileans, 506. 

Gallatin, Secretary, 80. 

Gambling, 454. 

Garfleld, President, Preface, 80, 479. 

Generalization,. 92. 

Genoa, 30, 73. 

Genovesi, 73. 

Gentiles 27. 

George, Henry, 86, 274, 282. 

Georgia mill-owner, 305. 

German coinage, 349. 

German mark, 355, 389. 

Ghent and Liege, 28. 

Gibbon, 193, 528. 

Gladstone, 283, 289, 294, 508. 

Glass in Berkshire County, 490, 520. 

Gloves and hats, 183. 

Glut of products, 184. 

God's bounty, 278. 

Gold certificates, 411. 

Golden fleece, 28. 

Goodhue of Massachusetts, 539. 

Goose and gander, 373. 

Gorringe, Commander, 199. 

Gournay, 46. 

Govaii of South Carolina, 555. 

Government, 111, 581. 

Government remedy, 233. 

Grain-dealer, an illustration, 415. 

Grams, 395. 

Granada, 27. 

Grand divisions of time, 417. 

Grand Trunk Railway, 516. 

Greeks, 3, 7, 8, 15. 

Greeley, Horace, 83. 

Greenbacks, 409. 

Green's History of England, 583. 

Gresham, Thomas, 59. 

Gresham's law, 351, 368, 378, 392, 406. 

Grote, 16. 

Grounds of money steadiness, 337. 

Grounds of production, 174. 

Guilds of the middle ages, 221. 



H. 

Hamburg, 29. 
Hami ton, 80, 388, 396, 426. 
Hamilton Tariff, 544. 
Hanseatic League, 30. 
Hanse towns, 29. 
Harbor bill, 514. 
Hargreaves, 59. 
Harmony Mills, 499. 
Harris, Edward, 497, 511. 
Hartley of Pennsylvania, 537. 
Hawkins, John, 59. 
Hayne, Senator, 461. 
Hemp and whiskey, 552. 
Henry IV., 40. 
Hercules, pillars of, 7. 
Herodotus, 7, 327. 
Heth, sons of, 5. 
High cost of labor, 30f, 
Hildrcth historian, Pr&V»«. 



Hipparchus, 3. 

Hiram, King of Tyre, 315. 

Historical chapter, use of, 2, 

Holland, 44. 

" Home market," 505, 525. 

Homer, 8, 325. 

Homer, Sidney, 458. 

Huguenots, 37. 

Hull, John, 379. 

Hume, 62. 

Huns, 31. 

Husbandry, three-field, 58. 

Huskisson, 478. 

Hutchinson, Thomas, 381. 



Ideal dollar, 357. 

Illinois, 173. 

Impressibility of money, 348. 

Improvements in agriculture, 28T. 

Improvements in machinery, 433. 

Income tax, 586. 

Increase of capital, 269. 

"Indestructible powers of the soil," S8L 

Indirect taxation, 589, 599. 

Induction, 91, 126. 

Inexorable laws, 196. 

inferior money, 249. 

Institutes of Justinian, 20. 

International demand, 470. 

Intrinsic, 148. 

Introspection, 102. 

Invention, 178. 

Invention of money, 317. 

Ireland, 297. 

Irish Land Act, 237, 283, 294. 

Isle of Wight, 9. - 

Isocrates, 442. 

Italian farmers, 19. 

Italy, 20, 24, 73. 



J. 

Jackson, Andrew, 400, 560. 

Jacob, 5. 

Jacobites, 361. 

Jamaica rum, 539. 

James II., 361. 

Jay, 385. 

Jefferson, 65, 381, 389. 

Jevons, 132, 302, 339. 

Jews, 5, 26, 370, 442. 

Joachimsthal, 390. 

Job, book of, 6. 

Jones of Georgia, 563. 

Journeyman, 143. 

Journeymen hatters, 603. 

Jute, 507. 

K. 

Kelley of Pennsylvania, 83, 670, 676. 

Kellogg, 132. 

Kenner of Louisiana, 574. 

Key of Maryland, 392. 

Kiehl, 112. 



y 



INDEX. 



605 



Kin Is of rnomy, 412. 

Kirkcaldy, 04. 

K- Ight'a History of England, 479. 

Knit-goods bill, 483, 

Knives, illustration of, 302. 

Knox. 

Knox, Comptroller, 400, 409, 400, 402. 



Labor, 200. 

I .abor combinations, 240. 

Labor defined, 204. 

Lab ir-takere, 210. 

Labor troubles. 2 -. 

Laissea Jinn , 107. 

Lake Superior, 690. 

Lancashire, 208. 

Land, 274. 

Land as a physical thin?, 276. 

Land in Croat Britain, osG. 

La iguedoc, 32. 

i it. Alfred, 529. 
Latin anion, 338, '-'-bo. 
Law, John, 46, 364, 380. 
Lawrence of New York, 540. 
Lead-pencils, 120. 
Leadville, 220. 
Legal restrictions, 221. 
Legal tender, 4 7. 
. Cliffe, 70. 
Lesser aits, 02. 
Le Trosi e, 4% 
Libra, Latin, 322. 
Limits of value, 409. 
Lincoln, President, 405. 
Liud, Jenny, 213. 

Liverninre of New Hampshire, 555. 
Loan, 416. 
Lobbying, 576. 
Locke, i'd, 35 '•. 
Lombards, 442. 

:l, 23. 
London clearing-house, 444. 
Longland, "William, 224. 
Lord North, 004. 
Louis XIV., 40. 
Louis XV., 49. 
Lowell and Jackson, 545. 
Lucca. 31. 
Lucius l'aulus, 13. 
I ydians, 9. 



( 



M. 

Macaiuay, 25, 352, 361. 
Macedonia, 23. 
Machinery, 188, 309. 
Machpelah, cave of, 316,346. 
Maclcod, II. I).. Preface, 21, 71, 85, 98, 
100, 113, 131,353,290,333,414,438. 

ifilcOltt 

Madisoi 

Magna Charts, 20, 370, 584. 

Malesberbes, 

Malthnsiaulsm, 238, 518. 

ilunduti, 007. 



Mans, 34. 
Manufactures, natural, 501>» 
Man-hands dPaau, 83. 
Market for products, 185. 

Mabkbi - r 

Market value, 158. 

Mars, Mercury, 17. 

Martin, Henri", 41, 83. 

Martin, L. < r., 530. > 

Massachusetts, 102, 173, 379, 594. 

Master, 

Matter, 180. 

McC'ulloch, l'reface, 144. 

McCullock, Secretary, 80, 403, 520. 

McDuffle, 

Measure of services, 329. 

Mehlig, 132. 

Mehrlng, 76. 

Melssonler, 211. 

Mercantile system, 35, 33, 42. 

Merchant-Cild, 28. 

Menier de la Riviere, 48. 

Metaphysics, 84, 105. 

Methods of protection, 4S7. 

Metropolitan museum, 442. 

Mexican dollar, 301. 

Middle age, 24, 20,370. 

Milan, 32, 34, 7:',. 

Mileage of railroads, 257. 

Mill. J. B., Preface, 71, 81, 94, 97, 137, 590 

Milled dollars, 358, 3S3. 

Millennium, 512. 

Mina, 4. 

Afinimumt, 558. 

Mining, old modes of, 6. 

Minneapolis, 117. 

Mint. : 

au, 49, 307. 
Mobility of laborers, 221. 
Molassc 
Mommsen, 16. 
Monetary conference, 104. 
Money, 35, 15:;, 314. 
Money a medium, 020. 
Money defined, 328. 
Money portable, 019, 346. 
Monopolies, 190. 
Montague 
Montesquieu, 327. 
Moody, the mechanic, 545. 
Moon, changes of, 3. 
Moore, J. S., 486. 
U 

Moral science, 107. 
Morrill Tariff, 507, 572, 577 
Morris, Qouvemeur, 3S8. 
Morris, Kobe::. 
Mortgages, 422, 633. 

Motion in production, 205. 
Murillo, 161. 

Mutual purchase, 131. 
Mutuuni, 410. 



N. 



Nails, 320. 
Nancy, 184. 
Napoleon, 191, 593. 



60( 



INDEX. 



National debts, 457. 

Nation in taxes, 593. 

Nation, the, Preface. 

Natural agents, 203. 

Natural value, 301, 301J. 

Navigation acts, 508, 534. 

Negro suffering, 17. 

Net product, 47, 52. 

Nevada, 349. 

Newburg, 384. 

New Hampshire, 284. 

New Haven, 389. 

New Orleans, 366. 

Newton, 353. 

N«w York clearing-house, 444. 

New York Public, 457. 

Nicole Oresme, 35. 

Nineveh, 2. 

Novgorod, 29. 

Nominal wages, 305. 

Nottinghamshire laborers, 229. 

o. 

Obelisk, 199. 

Obstacles, 180. 

Occident and Orient, 353. 

Ouyssey, 8. 

Old machinery, 303. 

Onondaga Salt Company, 516 

Ores, 123. 

Orient, the, 2. 

Origin of capital, 254. 

Origin of " protection," 477. 

Oscillations of demand, 344. 

Ought, 107. 

Ought-quality, 90. 

Oxen, 8. 

Oxford, 28, 64. 

P. 

Paganini, 208. 

Paley, 107. 

Paper money, 358. 

Par of exchange, 436, 438. 

Pasion, 442. 

I'atent rights, 194. 

Patrons, 22. 

Peasant revolt, 224. 

Peculiarity of credit, 413. 

Pecunia, 325. 

Peel, Sir Robert, 529, 563. 

Persia, 12. 

Persians, 7. 

Persons, 115. 

Persons and things, 163, 266. 

Persons in credit, 414. 

Pheidon, 9, 325. 

Phillippe le Bel, 36. 

Philpott, Preface, 573, 

Phoenicians, 7. 

Physical sciences, 94. 

Physiocrats, 49, 274, ,,15. 

Pig iron, 173. 

Pine-tree coinage, 379. 

Pin-making, 187. 

Pioneers, 2. 



Pitt, William, 67- 

" Plant," 264. 

Plate, 339. 

Plato, 10. 

Pliny, 20. 

Political economy, 114. 

Politics, 12. 

Porter, R. P., 575. 

Post hoc ergo propter hoc, 100, 49], KM. 

Post-office, 596. 

Pottery wares, 576. 

Pound, '3. 

Power, 206. 

Powers and wants, lit. 

Prejudice, 220. 

Price, 151. 

Price, Bonamy, 68, 333, 419. 

Prince Leopold, 69. 

Principles of taxation, 585. 

Printing paper, 506. 

Procullus, 150. 

Produce, 292. 

Production, 165. 

Professional labor, 204. 

Profits denned, 253, 260. 

Promise dollar, 357. 

Promissory notes, 422. 

Property, 99-108. 

" Protection," 23, 43, 476. 

Protective system, 43. 

Protective tariff, 482. 

Provence, 32, 37. 

Prudhon, 53. 

Prussia, 74. 

Publicity in taxes, 588. 

Public opinion, 236, 514. 

Pumpelly, 264. 

Q. 

Quaker City, 392. 
Quantity of money, 323. 
Queen Elizabeth, 352. 
Quesnay, 45, 85. 
Quid pro quo, 120. 
Quinine, 571. 
Quint, 389. 

R. 

Rae, John, 81. 
Railroads, 256. 
Railroad ticket, 320. 
Randolph. John, 399, 5i\'o 
Rates of profits, 309. 
Rau, 76. 

Raymond, Daniel, 81. 
Release is payment, 451. 
Rent of lands, 288. 
Republicans, 532. 
Revenue tariff, 481. 
Rhode Island, 378, 381, 402. 
Ricardo, Preface, 144, 286, 61& 
Bichesse, 52, 170. 
Ripley, George, Preface. 
Roach, John, 94, 504. 
Robertson of Louisiana, 551. 
Robesp:«rre, 368. 



INDEX. 



607 



Roman law, 420. 

Romans, 16. 

Roscher, 35, 77. 

Rowley in Massachusetts, 603. 

Rugglea, d. B., 104, 395. 



.!al in ue and Cassius, 149. 
ialablc land, 280. 
tales, 96. 

iancl diamond, 134. 
LJartaln, John, 211. 

i ■tions, 124. 
Savings banks, 247. 
Bay, Jeau-Baptiste, 52, 112, 184. 
Say, Leon, 66. 
Scarcity, 610. 
Schooler, historian, 538. 
Science delined, 89. 
Sciences as classified. 03. 
Sciences, growth of, 1. 

h banks, 425, 443. 

iorage, 346. 
■cko in money, 344. 
Silf-intercit, 271. 
Semprouian law, 24. 
Senior, Preface, 1G8, 191. 

ie for service, 134. 
Services, 129. 

Services of three kinds, 413. 
Seymour, Governor, 579. 
Bbakspeare, 35, 518. 
Bhays Rebellion, 3S5. 
Sheffield, f>9. 

Sherman, Secretary, 80, 4S5, 507, 577. 
Shi-> building, 523. 
Shipping in United fiistea, 197. 
Bicfiy, 19, 24. 
Siddbns, 132. 
Silk culture, 37. 
Silks and cottons, 4b9. 
Silver certificates, 41d. 
Sismondi, 112. 

I labor, 204. 
Slavery, 24. 
Smith, Adam, Preface, 63, 137, 187, 375, 

Smith. Residue, 83. 
Socialism, 55. 

y, mo, 581. 
Bocrates, 10. 
Solomon, 315, 346. 
Bomera 

Soult, Marshal, 161. 
Source of taxes, 581. 
Spauldlng, E. <;., 514.. 
Spelling-book, 138. 
Spencer, Herbert, 462. 
Bplnner, treasurer, 565. 
"Springfield Republican,' »iJ. 
Stamp Act. 534. 
Standard of comparison, 330. 
Star-" and stripes 523. 

- in taxation, 593. 

St. ciaii-, Gen, 
Steam-engine, 196. 
Stein, 70. 



St. Louis of France, 27, 33. 

Stocks, 423. 

Strawberries, 141. 

Strikes, 2lo. AW>. 

Bturtevant, Professor, si, 85. 

Subjugation of land, 277. 

Subsidiary silver coins, 406. 

Sub-treasury, 401. 

" Suffocation,'' 398. 

Bully, :;8. 

Sumner, W. G., Preface, 84, 578. 

Supreme Court of United States, 407. 

Surgeon, 3 '1. 

Swift, Dean, 579. 



Tailor and blacksmith, 177, 464. 
Talleyrand, 367. 

Taney, thief Justice, 400. 

Tannery. 

" Tariff commission," 573. 

Tariff, origin of, 4S<>. 

Tariff Resolutions of 1858, 566. 

Tariff taxes, 494. 

Taxali in, :;!"■. 

Taxes and prices, 000. 

Taxes on expenditure, 590. 

Tea and coffee, 4S4, 612. 

Telfair of (icorgia, 54S. 

Terence, 160. 

Thing-dollar, 831. 

Thompson, l'rofesson, 504. 

Thornlv, James, 496. 

Tigris, 2. 

I !ds, 9. 
Tobacco, 599. 

Tooke's History of Prices, 162. 
Tours, 27, :;7. 
Tripoli. 

Troughton's inch, 333. 
Trust affects wages, 218. 
Trustee, 415. 
Tnbal-Cain, 255. 
Tucker of South Carolina, 541. 
Turgot, 49, _ 
Turkish corn, 30. 
Tyre, city of, 5, 30. 

u. 

TJlpian, 20, 99, 127, 417. 

Ulster, 59. 

Uncertainty in credits, 455. 

United States Rank, 397. 

Unit of labor, 227. 

lire, Dr., 313. 

Ustarlz, 4o. 

Usury laws, 100, 102, 369. 

Utility and value, 15. 

V. 

Value, 113. 

ValttS and utility, 54, 143, 146. 

Value defined, OS, 

Van Rnren, 40l. 
Vauban, 45. 



608 



INDEX. 



Venezuela, 571. 
Venice, 36, 73. 
Verification, 92. 
Vermont, 389, 402. 
Verplanck of New York, 560. 
Versailles, 46. 
Virginia, 504. 
Virginia tobacco, 319. 
Voluntary associations, 221. 



w. 



Wages, 311. 

" Wages-class," 208. 

Wages-payers, 210. 

Wages-portion, 233. 

Walker, Amasa, Preface, 81. 

Walker, F. A., Preface, 80, 81, 169, 228, 

333. 
Walker, J. H., 418. 
Walker, Secretary, 80. 
Walker Tariff, 563. 
Wallace, 462. 
Wampum, 378. 
Wants and powers, 110. 
Washington, 3S6, 396. 
Watered stock, 511. 
Water from the spring, 155. 
Water-wheel, 181. 
Wayland, Preface, 81, 85. 
Ways and Means Committee, 479, 515, 521,- 

572. 
" Wealth of Nations," 375. 
Webster, DamVl, 213, 461, 608, 563, 657, 

578. 



Webster, Noah, 385. 

Weights, 4. 

Wells, D. A., 80. 

Whately, Preface, 71, 112. 

"Wheel of exchange, 322. 

Whig Tariff, 563. 

White, Ilorace, 403. 

Wife, 181. 

" Wild-cat banking," 398. 

William and Mary, 353, 478. 

William the Conqueror, 28. 

Willoughby, Sir Hugh, 60. 

Winthrop, Gov., 503. 

Wolowski, 35, 55. 

Wolsey, 84. 

Woollen blankets, 486. 

Worsted, 59. 

Wright, Carroll D., 244, 496. 

Wright, Senator, 562. 



X. 



Xenophon, 9. 



York shilling, 390. 
Young, Edward, 490. 
Young pretender, 362. 

z. 

Zeal of absolute ownership, 294, 
Zollverein, 74. 
Zulus, 526. 



